📷 Image Credits: Moneycontrol
India’s headline retail inflation eased to the lowest in a year at 4.75 percent in May 2024, marking a significant decline from the previous month. The data released by the statistics and programme implementation ministry on June 12 showed a notable improvement in the country’s inflation levels. The Consumer Price Index (CPI) inflation in April was at 4.83 percent, making the headline rate for last month the lowest since May 2023 when it came in at 4.31 percent.
Core inflation, which excludes volatile components such as food and fuel, is now at an all-time low of 2.97 percent, indicating certain demand imbalances and gaps in the economy. The Consumer Price Food Index (CPFI) remained almost flat at 8.69 percent versus 8.7 percent a month ago.
The Reserve Bank of India (RBI) has maintained its FY25 inflation projection at 4.5 percent but has acknowledged that food prices could continue to be sticky. The downward trajectory for the headline inflation rate in May was due to a contraction in the fuel and light category, although at a lower pace than the previous month.
Experts like Aditi Nayar, Chief Economist at ICRA, have noted that the unexpected ease in CPI inflation in May was largely driven by a lower-than-anticipated print for the food and beverages group. Additionally, growth in the Index of Industrial Production (IIP) slowed to 5 percent in April, the lowest in three months.
The moderation in retail inflation was accompanied by some kitchen staples declining in prices, contributing to the overall improvement. Experts believe that if food inflation continues to moderate, there is a possibility of an interest rate cut during the second half of the current fiscal. While vegetable inflation dropped slightly, cereal and pulses inflation rose, balancing the equation.
Core inflation, which excludes food and fuel inflation, eased to 3 percent in May from 3.2 percent in April, led by a broad-based moderation across categories. Food inflation is expected to remain high in June as well, with prices of key vegetables such as potato, tomato, and onion rising. The outlook for food inflation has brightened due to anticipation of a normal monsoon, but the distribution of monsoon will be crucial to monitor.
In conclusion, India’s retail inflation hitting a 12-month low in May has positive implications for the economy. With core inflation expected to rise in the coming months and food inflation remaining a concern, policymakers will need to closely monitor price pressures and consider appropriate measures to ensure economic stability.
