Ghar Kharcha: Household Budgets Face Continued Pressure As Food Prices Stay High In May

Household budgets in May saw no relief despite a drop in inflation, according to government data released on Wednesday, even as India's retail inflation fell to 4.75% in May from 4.83% in April, marking a year-low.

Food and beverage inflation remained at 7.87% in May, rising by 0.7% on a sequential basis. Key kitchen staples such as potatoes surged by 55.4% year-on-year and 15.1% month-on-month. Similarly, tomatoes and onions saw annual increases of 41% and 38.1%, respectively.

Mango inflation continued to come in at 25.2% in May, after 25.5% in April.

In utilities, electricity rates rose by 10.1% compared to last year, contrasting with continued declines in fuel prices after earlier reductions this year. Gold prices also jumped significantly, rising by 18.2%, while prices of silver rose by 14.5% annually.

Looking ahead, analysts predict June's headline inflation to ease despite anticipated higher prices of pulses and tomatoes.

Daily retail food prices indicate upward pressure in the first two weeks of June 2024, Gaura Sen Gupta, chief economist at IDFC First bank. The continued pick-up in vegetable prices , pulses and cereals, reflect the impact of heatwave conditions, she said, forecasting June CPI at 4.4% aided by supportive base effect.  

Food prices are also expected to ease as the monsoon season progresses, Sen Gupta said. The outlook for inflation remains favourable with monsoon supported by development of La Nina conditions, she added.

"Food and beverages inflation is expected to ease in June compared to May," ICRA's Chief Economist Aditi Nayaralso said in an emailed response, adding, "This should keep the headline CPI inflation below 5% in June."

Nayar further noted an expected temporary sharp decline in CPI inflation to 2.5-3.5% in July and August due to a favourable base effect.