India’s retail inflation eased further in May to a 20-month low of 4.25%, from 4.7% in April, with price rise in food items faced by consumers moderating to 2.91%. This is the third successive month that inflation has remained below the Reserve Bank of India’s (RBI’s) upper tolerance limit of 6% after a prolonged streak above it.
Base effects from May 2022 when retail inflation was over 7% also played a role in lowering the inflation rate this May. On a month-on-month basis, however, price levels continued to firm up, with the Consumer Price Index (CPI) rising 0.51% for the second successive month, while the Consumer Food Price Index (CFPI) ticked up 0.7%, compared to 0.6% in April.
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Urban consumers continued to face a slightly higher inflation at 4.27% than their rural counterparts (4.17%), but food inflation was lower in urban areas, easing significantly to 2.43% from 3.7% a month earlier. In comparison, rural food price rise moderation was less benign, cooling to 3.2% in May from 3.9% in April.
Among food items, vegetables and edible oils contributed the most to the cooling inflation pace, with prices falling 16% and 8.8% from May 2022 levels, respectively. At the same time, inflation in cereals (12.7%), pulses (6.6%), milk (8.91%) and spices (17.9%) remained areas of concern.
Key factors to watch
Economists said the delayed onset of the monsoon and the El Nino factor are key factors to watch to ascertain the trajectory of food prices and overall inflation. They expect inflation to average below the central bank’s 4.6% projection in the first quarter of 2023-24 even if June’s inflation print inches up.
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Bank of Baroda chief economist Madan Sabnavis said 6%-plus inflation in household goods, personal care and health was a cause of some concern as it signals companies were still in the process of passing on higher input costs to consumers.
While May’s inflation print is an endorsement of the RBI Monetary Policy Committee decision to hold interest rates again this month, ICRA chief economist Aditi Nayar believes rate cuts are still distant. “We expect an extended pause through 2023-24 and the stance to remain unchanged over the next couple of bi-monthly policy reviews,” she said.
