Headline wholesale price-based inflation rose to 7.55 per cent in May, compared with 7.23 per cent in April, primarily owing to food and fuel prices remaining at elevated levels. The rate of price rise was slightly higher than the range of 6.5-7.5 per cent set by the government for this financial year.
Initial inflation numbers for the past few months, however, were later revised significantly. In March, inflation figures were revised by 80 percentage points —from 6.89 per cent to 7.69 per cent.
Food inflation rose to 10.74 per cent in May, compared with 10.49 per cent in April. While food inflation remained in double digits for the third month, the rate of price rise for manufactured products fell to about five per cent, triggering expectations the Reserve Bank of India (RBI) would cut policy rates in its monetary review scheduled for next week.
Finance Minister Pranab Mukherjee, however, said if the monsoon was normal this year, it would help the government tackle inflationary pressures. “I am confident the range of inflation would be 6.5-7.5 per cent throughout the year,” Mukherjee said. However, so far, the progress of monsoon has not been very encouraging.(Click here for charts)
Fuel inflation rose from 11.03 per cent in April to 11.53 per cent in May, even as petrol saw a fall in inflation — from 12.04 per cent to 10.51 per cent.
In what could aid RBI to lay more stress on growth, manufactured product inflation declined from 5.12 per cent in April to 5.02 per cent in May. Core inflation (non-food manufactured products), however, rose from 4.77 per cent to 4.86 per cent.
Many economists believe despite inflationary pressures, RBI would opt for a rate cut to focus on reviving economic growth. Anis Chakravarty, senior director, Deloitte, said, “As core numbers have remained within a tolerable level, we expect RBI to go ahead with a rate cut in the next policy review.”
Icra economist Aditi Nayar said the elevated inflationary expectations notwithstanding, concerns related to moderation in economic growth may prompt the central bank to reduce the repo rate by 25 basis points.
YES Bank chief economist Shubhada Rao said the details of the inflation story were not comforting, and this would make a decision on policy rates challenging for RBI. “However, downside risks to growth would take precedence over inflation,” she added.
Economic growth fell to a nine-year low of 6.5 per cent in 2011-12. Though the government remains optimistic of a turnaround in the economy this financial year, data for April and May do not point to a revival. In April, industrial growth remained muted at 0.1 per cent. Also, contraction in exports and imports in May do not suggest a reversal of the economic slowdown anytime soon.
Rohini Malkani, economist, Citi India, said, “We revised our rate call for 2012 to a further 50-75 basis points of easing, versus 25 basis points earlier.” She, however, said she felt much of the growth concern was resulting from policy inaction by the government.