India's Retail Inflation Eases To The Lowest In A Year At 4.75% In May

India's retail inflation eased to the lowest since May last year, led by continued reduction in fuel cost and steady food prices.

The Consumer Price Index-based inflation stood at 4.75% in May, as compared to 4.83% in April, according to data from the Ministry of Statistics and Programme Implementation, released on Wednesday.

A panel of economists polled by Bloomberg estimated inflation at 4.85% for the month. Inflation has been within the central bank's tolerance band of 4% plus or minus 2% since September last year.

Food and beverage inflation came in at 7.87%, the same as in April. Fuel prices contracted by 3.83% in May, as compared to a 4.24% decline in the previous month.

Core inflation—that excludes food and fuel—eased to a series low of 3.12%, as compared to 3.25% last month, according to data from Bloomberg.

The inflation print comes just under a week after the Reserve Bank of India kept the benchmark repo rate unchanged for the eighth time at 6.5%, even as it reiterated its focus on food inflation trajectory despite easing core inflation.

Food products continue to push up inflation, with cereals, pulses, vegetables and meat/fish products pushing up the index, said Madan Sabnavis, chief economist at Bank of Baroda. The present heatwave has taken a toll on vegetable supplies, with prices of potatoes, tomatoes and onions rising, which will continue for another month or two, he said.

Adequate volume and dispersion of rainfall in the season remain key to improve the prospects for Kharif crop and replenish the reservoir levels, which would be crucial to support the Rabi crop, and rein-in food prices, said Aditi Nayar, chief economist at ICRA.

Future inflation numbers will be driven by base effects, especially after June and from July onwards, Sabnavis said.

Internals

• Cereal prices rose by 8.7%, as against 8.6% in April.

• Inflation in meat and fish was at 7.3%, as compared with 8.2% the previous month.

• Inflation in eggs was at 7.6%, as against 7.1% last month.

• Inflation in milk and milk products was at 2.6%, as compared with 3%.

• Prices of oils and fats declined 6.7%, as opposed to a 9.4% contraction in the previous month.

• Vegetable prices rose 27.3%, as compared with 27.8% last month.

• Pulses inflation gained 17.1%, as against 16.8%.

• Clothing and footwear inflation was at 2.7% versus 2.9% in the previous month.

• Housing inflation was at 2.6% versus 2.7%.

This print is likely to be of little consequence for the RBI MPC, which will prefer to take a forward-looking view, opting to see through near-term disinflation in Q2 FY24 and base-effect driven pullback, said Radhika Rao, economist at DBS Bank.