Retail inflation eases to 12-month low of 4.75% in May

India’s headline retail inflation eased to the lowest in a year at 4.75 percent in May 2024, data released by the statistics and programme implementation ministry on June 12 showed.

The Consumer Price Index (CPI) inflation in April was at 4.83 percent. The headline rate for last month is the lowest after May 2023 when it came in at 4.31 percent and has now been under the 5 percent-mark for three consecutive months starting March 2024.

Core inflation, which excludes volatile components such as food and fuel, is now at an all-time low of 2.97 percent, reflecting some demand imbalances and gaps in the economy, according to Emkay Global’s lead economist Madhavi Arora.

However, the Consumer Price Food Index or CPFI remained almost flat at 8.69 percent versus 8.7 percent a month ago.

In its latest policy review, the Reserve Bank of India (RBI) maintained its FY25 inflation projection 4.5 percent but added that food prices could continue to be sticky.

The downward trajectory for the headline inflation rate, was partly again on account of a contraction in the fuel and light category of 3.83 percent in May, albeit at a lower pace than a month ago.

On the other hand, food and beverages inflation remained the same at 7.87 percent last month versus April.

“The headline CPI inflation unexpectedly eased to a 12-month low of 4.75% in May 2024 from 4.83 percent in April 2024, as all sub-groups barring fuel and light either witnessed a softening or remained unchanged as compared to the previous month. The better-than-expected reading (ICRA’s forecast:+5.0 percent) was largely driven by a lower-than-anticipated print for the food and beverages group,” said Aditi Nayar, Chief Economist, at ICRA.

Growth in Index of Industrial Production (IIP), data for which was released on the same day, however, slowed to 5 percent in April, lowest in three months, as against 5.4 percent in March.

May CPI internals
Among food, while prices of vegetables eased marginally to 27.33 percent in May versus 27.80 percent a month ago, pulses saw a slight rise to 17.14 percent from 16.84 percent. Cost of cereals were also up on a month-on-month basis.

Meat and fish prices saw a significant decline to 7.28 percent last month from 8.17 percent in April.

“Although food and beverages inflation remained unchanged in May 2024 as compared to the previous month, as many as seven of the 12 sub-groups including spices, meat and fish, vegetables, etcetera. witnessed a cooling in their inflation prints. Nevertheless, this was the seventh consecutive month of a reading above the 7.0 percent mark,” ICRA’s Nayar added.

Sequentially, prices of spices in May softened notably to 4.27 percent as against 7.75 percent a month ago.

“Food prices still need a watch, with ongoing heatwaves and low reservoir levels that could put stress on fruit and vegetable prices,” according to Emkay Global’s Arora.

Arora added that for the year as a whole, it appears that FY25 headline CPI may undershoot the RBI’s inflation expectation of 4.5 percent by 10-20bps, assuming a normal monsoon and a modest rise in commodity prices.