Retail Inflation Hits To Over Two-year Low At 4.25% In May

India’s annual retail inflation cooled to a more than two-year low of 4.25 per cent in May as cost pressures on food eased, moving closer to the Reserve Bank of India’s target of 4 per cent, government data showed on Monday.

A Reuters poll of 45 economists had predicted the consumer price index would rise 4.42 per cent in May from a year earlier.

That left retail inflation below the RBI’s upper limit for the third straight month, and it was below the 4.7 per cent reported in April.

The law mandates that the central bank should target inflation at 4 per cent, with the flexibility of 2 percentage points on either side.

Last week, India’s central bank kept its key lending rate steady for a second straight meeting and signalled monetary conditions would remain tight until inflation falls towards 4 per cent on a sustainable basis.

India’s retail inflation was last below 4 per cent in September 2019.

Economists say strong inflation levels last year have flattered data this year and the so-called positive base effect will now wane. So after falling towards 4 per cent in May, they expect inflation to start picking up again.

Food inflation, which accounts for nearly half of the overall consumer price basket, eased to 2.91 per cent in May against 3.84 per cent in April.

On CPI inflation, Senior Economist at Kotak Institutional Equities, Suvodeep Rakshit said, “It is lower than expectations and benefitted from a favourable base effect as well as a further fall in food inflation. Food inflation benefitted from a sequential fall in prices of fruits and oils even as prices of eggs, meat, milk, vegetables and pulses continued to increase partly reflecting seasonal impact too.”