India May inflation likely cooled to 3% as food price pressure eases: Poll

RBI which targets inflation in the middle of its 2-6 per cent range in the medium term, also shifted its policy stance to 'neutral' from 'accommodative'

India's consumer inflation rate likely eased to a more than six-year low of 3 per cent in May thanks to a favourable base and a further moderation in food prices, a Reuters poll forecast, supporting last week's larger-than-expected interest rate cut.

On Friday the Reserve Bank of India (RBI) stunned financial markets by slashing its key policy rate by 50 basis points, double what was predicted, to boost economic growth as inflation has remained subdued.

The central bank, which targets inflation in the middle of its 2-6 per cent range in the medium term, also shifted its policy stance to 'neutral' from 'accommodative'.

 

A snap Reuters poll after the decision found the RBI was likely done with cutting rates, wrapping up one of its shortest and shallowest easing cycles in more than a decade.

The June 5-9 Reuters poll of 50 economists, published on Monday, forecast inflation measured by the annual change in the consumer price index (CPI) fell even further to 3.00 per cent in May from 3.16 per cent in April.

That would mark the fourth consecutive month below the RBI's 4.0 per cent medium-term target, the longest such streak in nearly six years.

It would also be the lowest inflation rate since April 2019, welcome news for many Indian households where food takes up a significant share of monthly expenses.

Forecasts for the data due on Thursday at 1030 GMT ranged from 2.7 per cent to 3.7 per cent.

"We are expecting a cooling of inflation to 3 per cent on a combination of a favourable base effect and... sequential moderation in prices of cereals and pulses even as most other segments started to strengthen," said Kanika Pasricha, chief economic advisor at Union Bank of India.

"Prices of most food segments though continue to slide but the pace of correction is losing ground," she added.

While concerns over widespread heatwaves raised fears of an inflation spike last month, a healthy harvest and the early arrival of monsoon rains helped ease those risks.

"Even though there were heatwaves, I think the early monsoons across the country are likely to have cooled things off... most of the categories of food inflation seem to be contained," said Indranil Pan, chief economist at Yes Bank.

Core inflation, which strips out volatile food and energy items and is seen as a better indicator of domestic demand, was expected to have edged up to 4.20 per cent year-on-year in May, from an estimated 4.00 per cent-4.10 per cent in April, the poll showed.

India's official statistics agency does not publish core inflation data.

Wholesale price index (WPI)-based inflation likely dipped to a 14-month low of 0.80 per cent in May from 0.85 per cent in April, the survey found.