E-Paper
Inflation eases to 7.04% but over comfort zone
The May number is largely in keeping with a Bloomberg forecast of economists, which had projected the May CPI number to be 7.1%.
India’s benchmark inflation rate, as measured by the Consumer Price Index (CPI), came down to 7.04% in the month of May from an eight-year high of 7.79% in April , although the dip has more to do with the base effect than other factors.
The May number is largely in keeping with a Bloomberg forecast of economists, which had projected the May CPI number to be 7.1%.
The fact that headline number continued to be above 6% made May the fifth consecutive month when inflation has been higher than the 6% upper limit of RBI’s tolerance range. It is expected to stay at elevated levels in the near term. The Monetary Policy Committee (MPC) of RBI had revised its inflation projection for 2022-23 to 6.7% in its resolution dated May 8. Quarterly inflation projections of MPC are 7.5% in the June quarter, 7.4% in the September quarter, 6.2% in the December quarter, and 5.8% in the March quarter.
“The outlook on inflation remains worrisome as weather shocks have come on top of high international commodity prices in raising supply-side pressure on the economy. It is set to rise again once the favourable base effect wanes from July,” Dharmakirti Joshi, chief economist, CRISIL Ltd, said in a note. “Further, international prices stay elevated for a wide range of agriculture, energy and industrial commodities, which will put a broad-based pressure on food, fuel and core inflation,” Joshi added.
The moderation in latest inflation numbers seems to be broad-based as the inflation print has come down for food as well as the core basket, which measures the non-food non-fuel component of CPI.
According to data released by the National Statistical Office (NSO) on June 13, food inflation, which accounts for 39% of the CPI basket, came down from its 8.31% value in April to 7.97% in May . The moderation in food inflation by driven by softening in inflation for cereals (5.96% in April to 5.33% in May ), pulses (1.86% to -0.42%) and oils and fats (17.28% to 13.26%) despite a spike in vegetable inflation which jumped to 18.26% in May from its April reading of 15.34%.
Core inflation came down from its April value of 6.95% to 6.18%. To be sure, whether or not the softening in core inflation represents an easing of broad based commodity price pressures, will be clear when the Wholesale Price Index (WPI) data for the month of May is released on June 14. WPI growth in April was at 150.8%.
Inflation in the fuel and light category stayed high at 9.54% despite the Union government announcing an excise duty reduction for petrol and diesel on May 21. The stickiness in fuel inflation is largely a reflection of high growth in prices of other fuels such as LPG and Kerosene. To be sure, fuel inflation did come down from its 10.67% value in April.
Between its May and June meetings, the RBI has already raised policy rates by 90 basis point, hiked the Cash Reserve ratio by 50 basis point and discontinued its accommodative monetary policy stance. One basis point is one hundredth of a percentage point. Experts also attributed the moderation in food inflation to steps taken by the government such as lowering of import duties on edible oil and restriction of exports of wheat and sugar.
