Retail inflation eases to 25-month low of 4.25% in May

The country's retail inflation, measured by the All-India Consumer Price Index (CPI), hit a 25-month low of 4.25% in May compared with 4.7% in April, according to data released by the Ministry of Statistics and Programme Implementation. The CPI-based inflation has remained within the Reserve Bank of India's (RBI) target limit of 4% to 6% for the third straight month. Retail inflation in March stood at 5.66%, whereas it stood at 6.44% in February.

In rural areas, the CPI inflation eased to 4.17% in May as against 4.68% in the previous month. The CPI inflation in urban areas eased to 4.27% in May as against 4.70% in April.  The retail inflation in the food basket eased to 2.91% during the month under review, as against 3.84% in April. The retail inflation in fuel and light also eased to 4.6% as against 5.52% in April.

The consumer food price index (CFPI) eased to 2.91% in May as against 3.84% in April. The CFPI for rural areas narrowed to 3.91% in May, whereas CFPI for urban areas stood at 2.43%.

Meanwhile, the country's index of industrial production (IIP) in April surged sharply to 4.2% in April as against 1.1% in March. For April, the quick estimate of IIP stands at 140.2. The IIP for the mining, manufacturing and electricity sectors for April stand at 122.5, 138.1 and 192.3 respectively. The IIP for primary goods, capital goods, intermediate goods and infrastructure/construction goods stand at 142.1, 94.0, 150.7 and 168.8, respectively for April. Further, the indices for consumer durables and consumer non-durables stand at 106.8 and 153.7 respectively for April.

Last week, the monetary policy committee (MPC) of the Reserve Bank of India (RBI) reduced its inflation forecast for 2023-24 to 5.1% from 5.2% projected earlier. Assuming a normal monsoon, CPI inflation in Q1 is projected at 4.6%, Q2 at 5.2%, Q3 at 5.4% and Q4 at 5.2%, the MPC said, adding it has decided to remain focused on 'withdrawal of accommodation' to ensure that inflation progressively aligns with the target while supporting growth.

"The headline inflation trajectory is likely to be shaped by food price dynamics. Wheat prices could see some correction on robust mandi arrivals and procurement. Milk prices, on the other hand, are likely to remain under pressure due to supply shortfalls and high fodder costs," the MPC said.

The MPC also retained its gross domestic product (GDP) forecast for the financial year 2023-24 at 6.5%. "The higher rabi crop production in 2022-23, the expected normal monsoon, and the sustained buoyancy in services should support private consumption and overall economic activity in the current year. The government's thrust on capital expenditure, moderation in commodity prices and robust credit growth are expected to nurture investment activity. Weak external demand, geoeconomic fragmentation, and protracted geopolitical tensions, however, pose risks to the outlook," RBI's rate-setting panel said.