Retail inflation soars to 6.3% in May from 4.23% in April: Govt

This is the fifth straight month of uptick seen in WPI-based inflation. The acceleration in inflation will result in adding pressure on the central bank to tame prices amid a faltering economic recovery.

Breaching the upper tolerance limit set by the Reserve Bank of India, the retail Consumer Price Index-based inflation in India soared to 6.3% in May, up from 4.23% in April, according to the government data released on Monday. The rising CPI inflation has breached the RBI's tolerance limit for the first time in six months.

People shop at a market after the government eased restrictions as the number of new Covid-19 coronavirus infections dropped, in Gurgaon. (AFP)

Additionally, the Wholesale Price Index-based inflation stood at 12.94% amid rising prices of crude oil, manufactured goods and a low base of last year.

This is the fifth straight month of uptick seen in WPI-based inflation.

The acceleration in inflation will result in adding pressure on the central bank to tame prices amid a faltering economic recovery.

Earlier this month, RBI had warned that high energy prices could stoke inflation while cutting the growth forecast to 9.5% from 10.5% for the current fiscal year beginning April.

Annual retail inflation rose 6.30% year-on-year, up from 4.29% in April. Analysts had forecast retail inflation at 5.30%, according to a Reuters poll.

Warning against price rise adding to the woes of consumers at a time when the economy is crippled by the deadly second wave of coronavirus infections, experts have said the recovery for the economy is likely to be more gradual.

"We expect the CPI (consumer price inflation) prints to remain above 5% until September driving the annual average CPI to 5.2% for the current fiscal year," Garima Kapoor from Elara Capital's economist institutional securities told Reuters.

The central bank could tolerate high inflation close to the upper end of its 2-6% target band as the recovery from the second wave was likely to be more gradual and subdued than the first wave, Kapoor said.

Food prices, which account for nearly half of the Ministry of Statistics' inflation basket, rose 5.01% year-on-year from 3.15% in the previous month.

A global recovery has led to a rally in commodity prices including crude prices. Brent crude futures have risen to over $72 a barrel from a low closing price of $19.33 in March 2020.

In India, fuel prices have risen by over 30% from May of last year.

High energy and commodity prices are also raising input costs for companies in India pushing wholesale price inflation to at least a 15 year high of 12.94% year-on-year in May, according to Refinitiv data.

May core inflation, excluding food and fuel costs, was estimated in the range of 6.54% to 6.56% by three economists, after the data release.

(With inputs from Reuters)