India’s consumer price index inflation in May 2024 eased to a 12-month low of 4.75 per cent but still remained significantly above the Reserve Bank of India’s target, driven by food prices, which makes a rate cut by RBI in the coming months unlikely. “Year-on-year inflation rate based on all India Consumer Price Index (CPI) number is 4.75 per cent for the month of May 2024, the Ministry of Statistics and Programme Implementation said on Wednesday. “The CPI inflation is lowest for the month of May 2024 after May 2023. It is less than 6 per cent since September 2023,” the MoSPI statement noted. The corresponding inflation rate for rural and urban is 5.28 per cent and 4.15 per cent respectively.
“The retail inflation edged down only marginally to 4.75 per cent in May 2024 from 4.83 per cent a month ago,” says Sunil Kumar Sinha, Senior Director & Principal Economist at India Ratings and Research.
“The moderation in the core inflation and a sustained deflation in fuel and light pushed the retail inflation down to a five-month low in April 2024. The food inflation remained flat at 8.7 per cent in May 2024,” adds Sinha who also notes that despite elevated vegetables inflation, the food inflation stayed flat due to low inflation in spices and milk. The inflation in these items slipped to a 29-month low of 4.3 per cent and 35-month low of 2.6 per cent respectively.
Food inflation has stayed above 8.5 per cent for four months now. “In May, seasonal pressures kept it at 8.7 per cent unchanged from April. Inflation in cereals rose higher, while it was rigid for vegetables. Pulses, on the other hand, rose unexpectedly after easing for 4 months,” says Dipti Deshpande, Principal Economist, CRISIL. As per MoSPI, at the sub-group level in year-on-year inflation, spices’ has shown a considerable decline as compared to April 2024. Among the groups, inflation corresponding to ‘clothing & footwear’, ‘housing’ and ‘miscellaneous’ has decreased since last month.
According to Sinha, food inflation above 8 per cent is not a good news for households belonging to lower income bracket whose consumption basket mainly consist of food items. The impact of high food inflation is finding a reflection in some other indicators such as consumer non-durables whose output grew 2.4 per cent yoy in April 2024. Unfortunately, the adverse weather conditions especially in the north due heat waves is likely to keep fruits & vegetables and in turn food inflation firm even in June 2024. Moreover, the price increase announced by the some of dairy cooperatives will also add to the already elevated food inflation.
For Sujan Hajra, Chief Economist, Anand Rathi, the issue is that high real policy rates are dampening private investment, Hajra points out. The concern is that that with developed countries and the US expected to start rate cuts in the next three months, the RBI will face increased pressure to adopt a more accommodative policy. “Already, two of the six members of the Monetary Policy Committee have shown support for softening the monetary policy. Overall, it will be challenging for the RBI to maintain its current pause and liquidity-tightening stance for long,” notes Hajra.
With the southwest monsoon having arrived on time, now its progress will influence how food inflation moves over the next few months, says Deshpande who sees some softening from June, as a supportive base will help bring down food inflation. Further easing will depend on the distribution of rainfall. For this fiscal, Crisil pegs inflation to average 4.5 per cent — assuming softer food and benign non-food inflation.