May retail inflation at 3-month low of 8.28%

Cooling prices of vegetables, dairy products come as breather

 

Retail inflation, measured by the consumer price index (CPI), fell to a three-month low of 8.28 per cent in May, against a high of 8.59 per cent in April, as prices of vegetables and cereals increased at a slower pace.

Inflation in rural parts fell to 8.86 per cent in May from 9.17 per cent in April. In urban areas, it came down to 7.55 per cent from 7.69 per cent, showed the official data issued on Thursday.

Data for wholesale price index-based inflation will be issued next week. It had eased to 5.2 per cent in April from 5.7 per cent in March.

CPI food inflation fell to 9.56 per cent in May against 9.66 per cent in April. Vegetable prices increased by 15.27 per cent, against 17.5 per cent in April. Prices of cereals and products rose 8.81 per cent, compared with 9.67 per cent the previous month. Items such as education, medical and housing showed substantial reductions in the rate of price rise.

“Put together, these movements represent a softening demand scenario, also reflected in easing of the core CPI inflation at 7.7 per cent. Core inflation was earlier at 7.7 per cent in June 2013,” said Indranil Pan, chief economist, Kotak Mahindra Bank.

Aditi Nayar, senior economist, ICRA, said a delay in revision of electricity prices and the gap in monthly revision of diesel prices were partly responsible for the CPI easing in May.

Retail inflation was 9.31 per cent in May last year. The Reserve Bank has set a target of eight per cent CPI by January 2015. It says it now takes CPI as a barometer for deciding the monetary policy stance. However, in its review early this month, the central bank kept the key policy rate unchanged, despite the increase in CPI inflation in April.

Pan said both headline and core CPI inflation could continue to slide, with RBI probably achieving its first target. He said this might rule out any rate increases this financial year and the next change in policy rates would be on the lower side.

Economists, however, cautioned that a delayed onset of monsoon and low precipitation might spoil this and that central and state governments should try to address supply-side constraints to ease pressure.

“In the immediate term, a judicious mix of policy measures such as appropriate setting of minimum support prices (for farm products), encouraging relatively less water-intensive varieties of crops and ensuring adequate availability of power and diesel at subsidised costs to ensure irrigation through groundwater could help mitigate the impact of a sub-par monsoon,” said Nayar.

Fuel and light prices expanded 5.07 per cent in May, against 5.96 per cent in April. However, fruit prices turned costlier with a price rise at 23.17 per cent, compared with 21.73 per cent in April. Prices of oil and fats went up 0.91 per cent in May, against 0.35 per cent in April. Prices of eggs, fish and meat increased by 10.11 per cent, higher than 9.41 per cent in April.

Rural inflation in May decreased to 8.86 per cent in May from 9.17 per cent in April, while urban inflation came down to 7.55 per cent from 7.69 per cent respectively.

The CPI data for June 2014 will be released on July 14. The data for wholesale price index-based inflation will be released next week. It had eased to 5.2 per cent in April from 5.7 per cent in March.