Mint Quick Edit | Inflation is on a slow decline

Though only a tad lower, inflation is slowly moving closer to the Reserve Bank of India’s 4% target.
Though only a tad lower, inflation is slowly moving closer to the Reserve Bank of India’s 4% target.

Summary

  • India's retail inflation eased to 4.75% in May, slightly down from a 4.83% recorded in April. The wait for price-level relief that lets RBI cut policy interest rates, though, may be long. There’s the US Fed to watch too.

India has marginally positive new data on the economic front. Retail inflation edged lower to 4.75% in May from 4.83% in April. Meanwhile, industrial output in April clocked a healthy 5% expansion, though it marked a decline from 5.4% in March. The production reading appears to validate the upbeat performance seen on other activity indicators such as the Purchasing Managers’ index, or even India’s gross domestic product growth numbers. 

Nevertheless, attention will stay focused on inflation, which has been guiding monetary policy. Though only a tad lower, it is slowly moving closer to the Reserve Bank of India’s 4% target. Elevated food prices are to blame for its current high level. If monsoon rains, however, keep their promise, a potential rise in agricultural supplies could help cool retail inflation down. 

Also read: Retail inflation eases, factory output ticks higher in May, boosting Indian economy

That would pave the way for the Indian central bank to start cutting interest rates later this fiscal year. Of course, cues from the US Federal Reserve could make it calibrate its rate moves with foreign exchange dynamics in mind. And for now, the US Fed seems dedicated to attaining price stability.

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