Retail inflation based on the Consumer Price Index (CPI) for the month of May eased to 7.04 percent as against 7.79 percent in April, mainly on account of softening food prices, data released by the government showed on Monday.

Share Market Live

NSE

However, it remained above the RBI's upper tolerance level for the fifth consecutive month. The retail inflation was 7.79 percent in April and in May 2021, it stood at 6.3 percent.

A CNBC-TV18 Poll estimates India’s May CPI to ease from an eight-year high of 7.79 percent in April and be closer to 7.01 percent. The core CPI is estimated at 6.2 percent versus 7 percent month-on-month.

Also Read:

Indian economy recovered strongly despite 3 COVID waves, says US Treasury report

Inflation in the food basket was 7.97 percent in May 2022, marginally lower than 8.38 percent in the previous month, as per the data released by the National Statistical Office (NSO). The food basket has weightage of 39.06 percent in the overall Consumer Price Index.

As per the data, the inflation print in the 'cereals and products' segment eased to 5.33 percent in May as against 5.96 percent in the preceding month, while that for 'oil and fats' softened to 13.26 percent from 17.28 percent.

The rate of price rise for fruits slowed to 2.33 percent from 4.99 percent. However, vegetable prices accelerated 18.26 percent as against 15.41 percent in April. Among others, the prices of eggs and 'pulses and products' showed deceleration, with negative inflation prints of (-)4.64 percent and (-)0.42 percent, respectively.

In the 'fuel and light' category, inflation during the month softened a tad at 9.54 percent from 10.80 percent in April. The Reserve Bank, which factors in the CPI in its monetary policy, had earlier this month raised the inflation forecast for the current financial year to 6.7 percent from its previous estimate of 5.7 percent.

Also Read: Explained | Rupee hitting low is good news for one-fifth of the Indian economy — here's what it means for you

Recently, the Reserve Bank of India (RBI) had upped the inflation projection for the current fiscal to 6.7 percent from the 5.7 percent forecast in April. RBI Governor Shaktikanta Das said the upside risk to inflation persists and the recent spike in tomato prices would fuel food inflation. Also, high global crude oil prices would add to the upside pressure on inflation.

As per the RBI's projections, inflation in the first quarter of the fiscal is likely to be 7.5 percent and at 7.4 percent in the following three months. It is expected to decline to 6.2 percent and 5.8 percent in the third and fourth quarters, respectively.

The CPI data is mainly factored in by the RBI while making its bi-monthly monetary policy. RBI has the mandate to keep inflation at 4 percent with a bias of 2 percent on either side.

Rajni Thakur, the chief economist at RBL Bank, said, "So more benign than what markets expected. We were at a 7.17 so definitely softer than that. But what is most heartening is the fact that they are sequential momentum, MOM, at 0.9 percent is much lower than in 1.1, for example, that we were looking at. So at the margin, it impacts the sentiments, relief or respite, however, short-lived that might be."

Also Read: Employers feel inflation heat in May and IT hiring slows, shows survey

Upasna Bhardwaj, senior economist at Kotak Mahindra Bank, "We were at 7.11 so the number is slightly softer. But nonetheless, it is broadly close to what markets were expecting. Yes, you are right, that there were certain expectations that were building up and that fear of a probable reading being higher up closer to 7.4 percent because RBI, probably the average at 7.5 percent looked a little more aggressive. But that is definitely going to calm the markets a little.

"I think the miscellaneous at 6.8 percent looks very much in sync with what we were anticipating. It is a slight softness that I have seen in the food prices from what you have just mentioned as numbers, a slight downward bias that we have seen. Overall, core inflation should have moderated sharply, there is also a base effect that is very favourable. But apart from that also, there was expected to be a slight moderation in core inflation."

Nikhil Gupta, the chief economist of Motilal Oswal Financial Services, said, "So 7 percent is broadly in line with our expectations and I don't think it makes too much difference whether it was 7 and the consensus was 7.2 percent. I am not sure the core number that you said 6.2 percent is actually higher because the food inflation that you mentioned is in line with - you mentioned it's 7.8, which is exactly what we predicted.

According to us, core inflation was close to 6.50 percent. You mentioned 6.2. But broadly, the fact is that it is lower than what it was in the previous month. So yes, I think this is broadly in line. This is not a surprise, definitely not a negative surprise. For June, we are closed to 6.7 to 6.8 percent."

First Published:Jun 13, 2022 5:38 PM IST