Retail inflation in India eases to two-year low at 4.25 pc in May

New Delhi [India], June 12 : Retail inflation in India further eased sharply in May to 4.25 per cent, hitting a two-year low. It was at 4.7 per cent in April and 5.7 per cent the previous month.

The inflation index for rural and urban was 4.17 per cent and 4.27 per cent, respectively.

The sub-index for oils and fats, fruits declined in May, data released by the Ministry of Statistics and Programme Implementation on Monday revealed.

Retail inflation or (Consumer Price Index) in India peaked at 7.8 per cent in April 2022 to a two-year low now, driven by a reduction in food and core inflation. In some advanced countries, inflation had in fact touched a multi-decade high and even breached the 10 per cent mark.

RBI's consistent monetary policy tightening since mid-2022 could be attributed to the substantial decline in inflation numbers in India. India's retail inflation was above RBI's 6 per cent target for three consecutive quarters and had managed to fall back to the RBI's comfort zone only in November 2022.

Under the flexible inflation targeting framework, the RBI is deemed to have failed in managing price rises if the CPI-based inflation is outside the 2-6 per cent range for three quarters in a row.

Meanwhile, RBI's monetary policy committee last week unanimously decided to keep the repo rate unchanged at 6.5 per cent. The repo rate is the rate of interest at which RBI lends to other banks.

Barring the recent pause, the RBI has raised the repo rate by 250 basis points cumulatively since May 2022 in the fight against inflation.

Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline

A consistent decline in inflation (currently at an 18-month low) and its potential for further decline may have prompted the central bank to put the brake on the key interest rate again.

Further, RBI lowered India's inflation projection for 2023-24 to 5.1 per cent against its April estimate of 5.2 per cent.

On a quarterly basis, retail inflation (or Consumer Price Index) in Q1 is seen at 4.6 per cent, Q2 at 5.2 per cent, Q3 at 5.4 per cent, and Q4 at 5.2 per cent, RBI Governor Shaktikanta Das said Thursday while reading out the monetary policy statement after a three-day deliberation.

"Let me re-emphasise that headline inflation still remains above the target and being within the tolerance band is not enough. Our goal is to achieve the target of 4.0 per cent, going forward," Das said.

Coming to India's wholesale inflation, it turned negative in April at minus 0.92 per cent. This has happened for the first time since July 2020.

Wholesale inflation has been easing and in March it was at 1.34 per cent against 3.85 per cent in February.

Overall wholesale inflation was at 8.39 in October and has been falling since then. Notably, the wholesale price index (WPI)-based inflation had been in double digits for 18 months in a row till September.

In April, the decrease in inflation is mainly attributed to the decline in food articles, cereals, wheat, vegetables, potato, fruits, eggs meat and fish, minerals, crude petroleum and natural gas, and steel, among others.

Wholesale inflation for May will be released later this week.