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India's retail inflation slipped modestly in May, but stayed well above the Reserve Bank of India's upper tolerance limit for a fifth consecutive month. Government data released on Monday showed that retail inflation based on consumer price index slipped to 7.04%, from 7.79% in April.

A Reuters poll of 45 economists showed inflation measured by the consumer price index (CPI) likely slipped to 7.10% in May on a year ago.

Kunal Kundu, India Economist at Societe Generale, Bengaluru said, "A fifth consecutive print above 6.0% and the second above 7.0% this year would continue to mean front-loaded rate action by the RBI. A lower print than that of April is mainly on account of statistical base effect and reduction in central excise duties on petrol and diesel."

"But with price of Indian basket of crude inching close to its Ukraine conflict high and food inflation hovering around 8.0%, we may not have yet heard the last about peak inflation unless oil companies continue to bear the burden of loss."

"With the shocker of an inflation reading in the United States suggesting no let-up in the Federal Reserve aggression, one has to brace for another strong action by the RBI in the next meeting."

Garima Kapoor, Economist, Institutional Equities, Elara Capital, Mumbai, said, "Led by lower pump prices post excise duty cuts and supported by base effect, CPI inflation for May 2022 posted a lower number. However, since the last excise duty cut, incremental pressure has developed in terms of higher crude oil prices and continued supply-side disruptions. The MPC (Monetary Policy Committee) is expected to hike policy repo rate by an additional 60 to 75 bps this financial year to rein in inflationary pressures."

Gurugram HDFC Bank's Principal Economist, Sakshi Gupta, said, "Inflation moderated in April, but this was driven by a high base from last year. On a sequential basis, inflation continues to gain momentum and signs of broad basing of inflationary pressures remain the worrying bit. We could see inflation remaining above or close to 7% until September. There are more upside risks to this forecast with oil prices remaining relentless. The RBI is likely to take the repo rate up to 6% by the fiscal year-end, front-loading its rate hikes."

Late last month, the government had announced a cut in tax on diesel and petrol to provide some relief to consumers from rising prices. 

The full effect is not expected to appear in consumer prices until June, economists say these measures have briefly helped stem the upward trend in prices.

Food inflation accounts for nearly half the CPI basket. A sharp fall in the rupee against the dollar this year has also made imports costlier.

After a surprise 40-basis-point hike at an unscheduled meeting in May, the RBI lifted its repo rate another 50 basis points to 4.90% last week and said inflation will likely remain above its 6% upper tolerance band until December this year.

 

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