Retail inflation hit 25-month low in May: Mint poll
1 min read 07 Jun 2023, 09:52 PM ISTWith inflation inching closer to the Reserve Bank of India’s medium-term target of 4.0%, monetary policy makers may continue to hold the policy repo rate unchanged to reduce the risk to growth.
PremiumNEW DELHI : India’s retail inflation is likely to have fallen to a 25-month low of 4.34% in May from 4.70% in the previous month, helped by softer rise in food prices and a favourable base effect, a Mint poll of 19 economists showed.
Economists predicted inflation in a narrow range of 4.10-4.66% for May. Official data will be released on 12 June.
With inflation inching closer to the Reserve Bank of India’s medium-term target of 4.0%, monetary policy makers may continue to hold the policy repo rate unchanged to reduce the risk to growth.
Following the Russia-Ukraine war, inflation spiralled out of control, touching 7.79% in April 2022 before moderating to 7.04% in May 2022. However, the uncomfortably high print in May last year has provided a favourable base effect this year, which should pull inflation down.
“CPI inflation is likely to continue to trend lower in May, driven largely by base effects, a more manageable seasonal rise in food prices, and sequential easing in energy costs," said Rahul Bajoria, economist at Barclays, in a report dated 6 June.
Economists expect food prices to be moderate in June as well, which may make inflation undershoot the RBI’s projection of 5.1% for the June quarter.
While the risk of the climatic phenomenon El Nino, known to cause deficient rainfall, is looming, its impact may only materialise in the second half of the current financial year. “With seasonally healthy reservoir levels, and an El Nino expected to materialise only in the second half of the monsoon season, kharif sowing may not be significantly impacted even with a delayed monsoon onset," said Aditi Nayar, chief economist at ICRA Ltd.
“However, any subsequent deficiency in monsoon rainfall could affect kharif yields and winter sowing, and thereby food inflation, which poses an upside risk to the CPI inflation trajectory in the second half of FY24," she added.
Food accounts for nearly 40% of the inflation basket.
