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It is for the third month in a row that Consumer Price Index (CPI) based inflation remained within the RBI‘s comfort zone of under 6%.
The inflation has fallen to a 25-month low mainly due to the easing of food prices such as cereals and vegetables as well as lower energy prices. The consumer food price index (CFPI), which accounts for nearly half of the overall consumer price basket, eased to 2.91 per cent in May from 3.84 per cent in April. Rural inflation stood at 4.17 per cent while urban inflation stood at 4.27 per cent.
The retail inflation based on Consumer Price Index (CPI) was 7.04% in May 2022, in a drastic rise due to Russia’s invasion of Ukraine.
Meanwhile, industrial output rose 4.2% in April 2023 against 6.7% a year ago, data showed.
The figures come a week after RBI kept its key lending rate steady for a second straight meeting and signalled monetary conditions would remain tight until inflation falls towards 4% on a sustainable basis.
India’s retail inflation was last below 4% in September 2019.
Economists say strong inflation levels last year have flattered data this year and the so-called positive base effect will now wane. Thus, after falling towards 4% in May, they expect inflation to start picking up again.
Expert take
“Inflation softened further in May as a high base effect continued to pull down the prints. Food inflation continued to moderate and it was encouraging to see a seasonally adjusted sequential decline in the headline inflation as well. Inflation is expected to print below 5% again in June although moving higher from Q2 onwards,” said Sakshi Gupta, principal economist at HDFC Bank, Gurugram.
“High base effect and lower sequential uptick in food and miscellaneous indices pulled headline retail inflation to a 26-month low of 4.25%. While El Nino continues to be a key monitorable risk, expected pass-through of lower global commodity prices to retail prices and impending cut in retail fuel prices are key tailwinds for inflation going forward,” said Garima Kapoor, Economist, Institutional Equities, Elara Capital, Mumbai.
“Rural and urban inflation (were) almost the same which is quite unusual. States had a differential picture. Inflation in Bihar, Jharkhand, Kerala, Tamil Nadu, Telangana, Uttar Pradesh and Uttarakhand were above average, while Delhi and Chhattisgarh brought it down. Given the uncertainty in the monsoon, the RBI will be watchful of inflation and policy stance. We believe that the earliest time for rate action, provided inflation is in line with the RBI’s estimate, would be February,” Madan Sabnavis, chief economist, Bank of Baroda, Mumbai.
“The CPI inflation print for May eased to a softer than expected 20-month low of 4.3%, as against our expectation of 4.6% for the month, with the positive surprise chiefly driven by the food and beverages segment. Nevertheless, concerns loom on the horizon regarding the potential impact of a sub-par monsoon on food inflation in the second half of this fiscal. A pivot to rate cuts is quite distant. ICRA expects an extended pause through FY2024, and the stance to remain unchanged over the next couple of policy meetings,” Rahul Agarwal, senior economist, ICRA Limited, Mumbai.
“The May print will prove to be a point of ‘local minimum’ in the current inflation cycle, with subsequent inflation readings moving somewhat higher to remain in the range of 4.5-5.5% over FY24. With the onset of El Nino globally, we watch closely its intensity in the near term for any possible adverse impact on India’s Southwest monsoon. We foresee a decisive down-move in inflation trajectory to 4.0-4.5% in FY25. As such we expect the RBI to maintain a prolonged pause on rates through the ongoing fiscal year, with a rate cutting cycle possibly commencing in the first quarter of FY25,” Yuvika Singhal, Economist, Quanteco Research, New Delhi.
(With inputs from agencies)
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