India’s CPI inflation rose for the eighth consecutive month, printing at 4.4% YoY in Jun-26 vis-à-vis 3.9% in May-26. While the uptick was anticipated by market participants, the headline inflation nevertheless posted an upside surprise compared to consensus expectation of a 4.2-4.3% print.

While still within the policy target band of 2-6%, CPI inflation now stands at an 18-month high – more importantly, it exceeded the 4% target for the first time since Jan-25.

Key highlights of Jun-26 data

• On sequential basis, CPI rose by 1.0% MoM, the strongest pickup seen in 20 months. It is also higher than the series median increase of 0.7% MoM associated with the month of June.
• Annualised Food & Beverages inflation rose to a series high of 5.1%, up from 4.5% in May-26. 
  1. Sequential build-up in price pressures was predominantly led by Vegetables & Pulses, followed by Fish & other seafood, Ready-made food products, and Dairy & Eggs.
  2. At an item-wise level, seasonal volatility in perishables persisted. Tomato, Ginger, Cauliflower, Carrot, Radish, Cabbage, Peas, Berries, Onion, etc. recorded substantial buildup in sequential price gains. This was partially offset by double-digit sequential price decline in Mango and Lemon.
• Consolidated fuel inflation accelerated to 4.5% YoY from 1.9% in May-26. This reflects the partial impact of (i) the hike in retail prices for petrol and diesel, which were affected in the second half of May-26, and (ii) most of the impact of the hike retail LPG cylinder, effected after the first week of Jun-26. 
• Core CPI inflation (represented by the CPI excluding food and beverages and all fuel items) remained unchanged at 3.9% YoY. Strong annualized inflation in divisions like Personal care, social protection & miscellaneous items and Restaurants & accommodation services is being offset by subdued prints in Information & communication, Health, and Recreation, sport & culture.

Inference and outlook

Headline inflation continues to be primarily driven by food and fuel components, even as overall core inflation has remained broadly stable. 

• Adverse summer seasonality along with a disappointing start to the southwest monsoon season is putting pressure on food prices. Between Jun-26 and Mar-26, the Food & beverages index has risen cumulatively by 2.7%, almost twice the magnitude of 1.4% increase seen in the corresponding period in 2025.
• The pass-through of higher international crude prices to retail fuel items since Mar-26 on items like Petrol (up by Rs 7.5 pl), Diesel (up by Rs 7.6 pl), and LPG (up by Rs 82.6 per cylinder) is also working its way through via both direct and second order impacts.

Having said, the recent correction in international crude oil prices from an average of USD 107 pb and USD 85 pb in May-26 and Jun-26 respectively to USD 73 pb in Jul-26 (so far) offers comfort and obviates the need for further price hikes to retail consumers. Having said, the crude price downside appears fickle. Renewed skirmishes in the Middle East as well as recent comments from US President on reinstating the naval blockade in the Strait of Hormuz, can potentially pull prices upwards (Brent is currently trading close to USD 85 pb levels).

While the fuel inflation outlook has stabilized vis-à-vis the peak of the Middle East Crisis (Mar-May 2026), the outlook on food inflation appears sombre. The month of Jun-26 was testimony to intense heatwaves, with monsoon falling short of LPA (long period average) by 40%. This marked one of the weakest starts to the Southwest monsoon season, in over a decade. The month of Jul-26 has so far seen a mixed outcome – the first week witnessed an intense spell of rainfall followed by the emergence of rainfall deficiency once again in the second week. Although rainfall in July (as of 13^th) has so far clocked a 10% surplus, IMD’s continues to forecast a cumulative rainfall deficiency of 10% for the entire southwest monsoon season (Jun-Sep).

Kharif sowing, which was down by nearly 20% YoY as of Jul 6^th offers little comfort. More than headline monsoon performance, its distribution will be of greater importance. At present, rainfall distribution remains weak:

• Nearly 54% of 741 districts have received deficient, large deficient or no rainfall
• Rainfall deficiency is sizeable in East & Northeast (at 36%) and Southern India (at 22%)
• In terms of area, 46% of the country has received deficient rainfall 

While poor rainfall is the key trigger for food price pressures, the lagged impact of INR depreciation for imported food items, pass through of higher farm input prices (diesel, tractors, fertilizers etc), along with an unfavourable base will also be at play. 

For Q1 FY27, CPI inflation has averaged 3.9% YoY, marginally below the RBI’s estimate of 4.2%. Looking ahead, we see inflation pressures firming up in Q2 FY27, and likely witnessing a buildup in momentum during H2 FY27 on as the impact on kharif production comes on board and the GST-related favourable base effect reverses. Overall, we maintain our FY27 CPI inflation forecast of 5.1%. This rests on a base-case scenario of continuing (but less intense) conflict in the Middle East, implying an average crude oil price remaining in the USD 80-85 pb for FY27; coupled with 10% cumulative rainfall deficiency during the southwest monsoon season. 

 Table1: Overview of key sub-components of inflation

Note:

1) CPI-Consolidated Fuel index includes the group Electricity, gas and other fuels under the Household, water, electricity & other fuels division, and Diesel, Petrol and natural gas (CNG) items from the Transport division.

2) CPI-Core excludes Food & Beverages and Consolidated Fuel indices from Headline CPI.

3) Readings under the memo items are derived from imputed indices. Figures have been rounded off.

Chart 1: Rainfall momentum has slipped once again after witnessing a short intense spell in the first week of July