CPI inflation cools down marginally to 7.04% in May

14 Jun 2022 , 09:26 AM

On the strength of the base effect and lower food costs, the consumer pricing index-based (CPI-based) inflation rate for May 2022 fell from an eight-year high in April to 7.04 %.

It was nonetheless the sixth month in a row that headline retail inflation exceeded the Reserve Bank of India’s (RBI) medium-term objective of 4 (+/-2) %, validating the central bank’s two recent interest rate rises.

The CPI rate for April was 7.79 %, according to figures issued by the National Statistical Office. In May, consumer food price inflation (CFPI) was 7.97 %, down from 8.09 % in April. According to a poll of 45 analysts conducted by news agency Reuters, the current CPI figure is somewhat lower than the market forecast of 7.1 %.

Excise duty reductions on gasoline and diesel, as well as duty reductions on other commodities, may have helped to keep inflation in check.

“Aside from the base effect, the effects of the Centre’s earlier tax cuts did play a role in cutting inflation to some extent.” This will be beneficial in the following months as well. Food inflation was strong, fueled by edible oils, spices, and vegetables. “On these things, there is unlikely to be much relief very soon,” said Madan Sabnavis, chief economist at Bank of Baroda.

The impact of excise tax reductions (for petrol and diesel) on prices, according to Sunil Kumar Sinha, chief economist at India Ratings, will be felt far sooner than the RBI’s rate drop, but only in June and beyond, both directly and indirectly.

The six members of the Monetary Policy Committee unanimously decided last week to raise the benchmark policy rate by 50 basis points, bringing the repo rate to 4.90 %. While the real GDP growth prediction for FY23 has been kept at 7.2 %, the inflation forecast has been raised to 6.7 % for the year.

Throughout the first three-quarters of FY23, the Monetary Policy Committee predicted that inflation would continue over the upper tolerance threshold of 6%.

The fact that crude oil prices are still high is the best signal that inflationary pressures will stay. Despite having a higher %age of Russian supply, the Indian crude oil basket has reached a 10-year high of $121 per barrel.

Benchmark crude oil was still trading at $118 a barrel globally, with many analysts predicting persistent levels of $110 or higher in the months ahead. The US Federal Reserve is anticipated to raise interest rates this week, despite global central banks restricting liquidity.

Because India’s cooking oil needs are primarily imported, the rates of price growth for oils and fats remained in double-digit territory, at 13.26 %, according to the May CPI statistics.

Vegetable inflation was over 18.3%, which is the most detrimental to households. Eggs and pulses and products had significant decreases in inflation, at -4.6 % and -0.46 %, respectively. Inflation in meat and fish was 8.23%, while inflation in fuel and light was approximately 10%.