India’s retail inflation cooled faster-than-expected in May, providing relief to policymakers even as risks from an uneven monsoon remain.
(Bloomberg) — India’s retail inflation cooled faster-than-expected in May, providing relief to policymakers even as risks from an uneven monsoon remain.
The consumer price index rose 4.25% from a year earlier, according to data released by the Statistics Ministry on Monday. The reading is lowest since April 2021, and compares with a median forecast for a 4.32% gain in a Bloomberg survey of economists. The inflation print was at 4.70% in April.
Food prices, which make for about half of the index, rose 2.91%, while fuel and light prices gained 4.64%. Clothing and footwear prices increased 6.64% and housing prices rose 4.84%.
Core inflation, which strips volatile food and fuel prices from the headline, moderated to 5.11%, from 5.30% in April. “The 25-month low CPI print, driven by factors beyond just favorable base effect is encouraging,” according to Anubhuti Sahay, economist with Standard Chartered Bank.
The print provides some comfort for rate-setters looking to align inflation with the RBI’s 4% aim on a durable basis. The central bank targets inflation in a 2%-6% range. Last week, the monetary authority kept its key rate unchanged for a second consecutive meeting and retained its “withdrawal of accommodation” stance but highlighted the need for a vigil on price pressures.
The possibility of El Nino affecting normal rains in India continues to be an inflation risk. “Any negative surprise on food inflation due to adverse weather development, can quickly push headline CPI closer to the upper threshold of the mandated band,” Sahay said, adding she expected a “prolonged pause” by the central bank.
India’s southwest monsoon, which irrigates about half of the country’s farmlands, finally arrived after the longest delay since 2019. However, the spread of the rains will remain crucial to containing food inflation further and deciding the trajectory for future rate cuts. Deficient rainfall also risks denting rural incomes and reducing domestic consumption.
(Updates with details.)
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