India’s Lowest Retail Inflation In 11 Months Won’t Deliver A Rate Cut

India's consumer inflation eased to an 11-month low but higher food prices during a sweltering summer leave little room for the Reserve Bank of India to cut the benchmark repo rate.

Inflation measured by the Consumer Price Index rose 4.83% over a year earlier in April as compared with 4.85% in March, according to data from the Ministry of Statistics and Programme Implementation, released on Monday. A panel of economists polled by Bloomberg estimated a reading of 4.8% for the month.

Food and beverage inflation rose 7.87% in April versus 7.68% in the previous month. Fuel prices fell 4.24% against a decline of 3.2% in March.

Core inflation—excluding food and fuel—remained at 3.25% in April.

Softer retail inflation, having stayed within the RBI's tolerance band of 4% (+/-2%) since September, is unlikely to spur chances of a rate cut in the June meeting of the central bank.

Food Inflation Woes To Continue?

The April print was no surprise and the reading will likely tick up to 5–5.1% in the next month as “considerable uncertainty” prevails in the food price outlook, said Madhavi Arora, lead economist at Emkay. Despite healthy progress in rabi or spring production, she said, uneven seasonality in vegetable prices, together with the increasing incidence of climate shocks, warrant careful monitoring.

Cereal, and meat and fish prices rose in April, while the pace fell for other food commodities including oil, eggs and vegetables.

ICRA fears that the food and beverage inflation will retrace above the 8.0% mark in May, partly on account of an adverse base as well as the heatwave conditions, according to Aditi Nayar, chief economist at ICRA, said. The research firm estimates the headline CPI inflation to hit a five-month high of 5.1–5.2% in the ongoing month.

Other Key Highlights

• Cereal prices rose to 8.63% in April, as against 8.4% in March.

• Inflation in meat and fish was at 8.17%, as compared with 6.4% in the previous month.

• Inflation in eggs was at 7.08%, as against 10.3% last month.

• Inflation in milk and milk products was at 2.97%, as compared with 3.4%.

• Prices of oils and fats declined 9.43%, as compared with 11.7% in the previous month.

• Vegetable prices rose 27.8%, as against 28.3% last month.

• Pulses inflation rose 16.84%, as compared with 17.7%.

• Clothing and footwear inflation was at 2.85% versus 3% in the previous month.

• Housing inflation was at 2.68% versus 2.8%.

Monetary Policy Implications

"With continued uncertainty, especially on the risks to the food inflation trajectory after Q2 FY25, the chance of a stance change in the upcoming June 2024 monetary policy review appears rather dim," said Nayar.