Telco Tariff Hikes Expected to Raise Core Inflation by 0.2% in FY25

The recent tariff hikes by India's top three telecom companies will increase core inflation by 0.20 per cent in FY25, according to a foreign brokerage. Analysts at Deutsche Bank have revised their core inflation forecast, excluding food and fuel, to 3.8 per cent. This adjustment reflects the impact of the telecom tariff hikes and below-trend monsoon rains.

Representative image

Impact of Telecom Tariff Hikes

The report highlights that the effect of telecom tariff hikes will start showing from July. These hikes alone will push month-on-month core inflation by over 0.85 per cent. Overall, core inflation is expected to rise by 0.20 per cent in FY25 due to these tariff increases. Consequently, Deutsche Bank has revised its FY25 core inflation forecast from 3.6 per cent to 3.8 per cent.

After more than two and a half years without any changes, the telecom companies announced a price hike of over 20 per cent. Reliance Jio, the largest operator, was the first to implement this increase.

Monsoon Rains and Inflation

Besides the tariff hikes, below-trend monsoon rains are another factor influencing inflation trends. The report indicates that these factors combined will affect the overall inflation trajectory.

Before the official data release on July 12, the report predicts June's core inflation to be 3.2 per cent, which is 0.13 per cent higher than May's figure.

Consumer Price Inflation Projections

The headline consumer price inflation for June is expected to be 4.96 per cent, up from May's 4.75 per cent. This increase is attributed to higher food and beverage prices, particularly vegetables.

The Reserve Bank of India (RBI) aims to maintain inflation at 4 per cent but anticipates fluctuations throughout the year. The RBI has expressed concerns about food inflation specifically.

The likely rise in June CPI inflation closer to 5 per cent is mainly due to increased prices in food and beverages.

In summary, the combined effects of telecom tariff hikes and below-average monsoon rains are expected to push core inflation higher in FY25.