India's headline inflation probably held near the Reserve bank of India's (RBI) comfort level of 5 per cent last month, giving it room to ease policy, as commodity, food and fuel costs remained moderate, a Reuters poll found.
Wholesale prices, India's key inflation measure, probably rose an annual 4.87 per cent in May, the slowest pace since November 2009, the poll of economists showed.
They rose 4.89 per cent in April, the first time the index has been below 5 per cent in over three years.
High inflation has been a constant roadblock for policymakers struggling to breathe life into Asia's third-largest economy, and a major factor in the declining popularity of Prime Minister Manmohan Singh's government.
"We don't expect it to rise primarily on account of global prices being soft in April and you would see some lagged impact in the inflation in May," said Abhishek Upadhyay, economist at Axis Bank in Mumbai.
In recent months inflation has cooled on moderating food and fuel costs, helped along by lower global commodities prices. Forecasts in the poll, conducted this week, ranged from 4.60 per cent to 5.40 per cent.
Both the manufacturing and services Purchasing Managers' Indexes (PMI) released last week also showed price pressures eased last month.
"As suggested by the monthly PMI readings, core inflation is likely to fall below 2.5 per cent," said Rupa Rege Nitsure, chief economist at Bank of Baroda.
Core inflation, which the RBI monitors to gauge demand-driven price pressures, slowed to 2.8 per cent in April from 3.5 per cent the previous month on slowing global prices of iron ore and steel.
However, the RBI - which has already cut its lending rate three times this year - has said it will increasingly monitor prices at a retail level, partly because the wide gap has made the consumer price index difficult to ignore.
Retail inflation likely remained elevated in May, despite easing for the third straight month, after staying close to or above double-digits for over a year, according to a separate Reuters poll.
To add to inflation concerns, the recent fall in the Indian rupee to record lows has sparked worries about a rise in the price of imported goods such as crude oil. India is one of the largest importers of crude oil and gold.
"If you see the WPI basket, about 50 per cent of it can be attributed to imported products. So if rupee depreciation sustains and global commodity prices don't come off ... there will be an impact on the coming domestic inflation prints," added Mr Upadhyay at Axis Bank.
Copyright: Thomson Reuters 2013
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
