Retail Inflation Slows To 7.04% In May, But Too Early To Peak -By ASC

Retail inflation declined to 7.04% in May, but remained above the upper end of the RBI target

India’s retail inflation eased slightly to 7.04 per cent in May from a year ago, after hitting an eight -year high in April, data showed on Monday.

That compares with a consumer price -based inflation (CPI) rate of 7.79 percent in April, the fastest rate in eight years. The previous high was recorded at 8.33 percent in May 2014. The April print was higher than 6.95 percent in March and 4.23 percent a year ago.

While the latest print for May of 7.04 per cent was below the April figure, it remained above the upper Reserve Bank of India (RBI) tolerance limit for the fifth consecutive month.

Food inflation, which accounts for nearly half of the CPI basket, was 7.97 per cent, slightly lower than 8.31 per cent in April.

Although retail inflation in May eased, prices of some food products were higher during the month under review.

In fact, prices of cereals, meat and fish, vegetables saw a significant increase in May compared to April.

The central bank last week projected price pressures to remain high and exceed its target group by 2-6 percent for the rest of this calendar year, so, it is too early to call inflation peaks.

In fact, the RBI, which is a factor in the CPI in its monetary policy, earlier this month had raised the inflation forecast for the current financial year to 6.7 per cent from the previous estimate of 5.7 per cent.

The government has mandated the central bank to keep retail inflation at 4 per cent, with a tolerance level plus or minus 2 per cent of that rate, which is between 2 and 6 per cent.

With the inflation outlook rising, the RBI had to raise its key rate for the first time in four years, raising it by 40 basis points (bps) in an off -cycle meeting in May and following a 50 basis point increase last week, bringing the repo rate to 4.90 percent.

The repo rate is the rate at which the RBI lends money to commercial banks.

The latest inflation data shows interest rates are set to continue to rise.


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