Retail Inflation Hits Year Low at 4.75% in May, Continues Downward Trend

Retail inflation continued to witness a declining trend, reaching a year low of 4.75 per cent in May. This decline was largely owing to a marginal drop in food prices, helping the central bank RBI to maintain the figure well below the 6 per cent mark

The Consumer Price Index (CPI), which has been on a downward trend since January, stood at 4.83 per cent in April 2024.

In May, the food inflation figure stood at 8.69 per cent, slightly lower than April's 8.70 per cent, as reported by the National Statistical Office (NSO). Overall inflation has gradually decreased since January 2024, ranging narrowly from 5.1 per cent in February to 4.8 per cent in April 2024.

According to NSO data, India's CPI-based inflation in May 2024 hit its lowest point since the same month a year ago, standing at 4.31 per cent.

The figure has stayed well-below the 6 per cent mark since September 2023. During May, the inflation in vegetables was higher compared to the preceding month, while it was low in the case of fruits.

The government has tasked the Reserve Bank with keeping CPI inflation around 4 per cent, with a margin of 2 per cent on either side.

Earlier this month, the RBI projected the CPI inflation for 2024-25 at 4.5 per cent, with Q1 at 4.9 per cent, Q2 at 3.8 per cent, Q3 at 4.6 per cent, and Q4 at 4.5 per cent.

The central bank mainly factors in the retail inflation while arriving at its bi-monthly monetary policy.

Commenting on the CPI data, Aditi Nayar, Chief Economist, Icra, said the headline inflation unexpectedly eased to a 12-month low of 4.75 per cent in May 2024 as all sub-groups, barring fuel and light, either witnessed a softening or remained unchanged compared to the previous month.

Icra estimates the food and beverages inflation to ease somewhat in June 2024 vis-a-vis the May 2024 print while remaining elevated above the 7 per cent mark in the month.

"This would help contain the headline CPI inflation print at sub-5 per cent in June 2024. Thereafter, a favourable base is expected to lead to a sharp albeit temporary fall in the CPI inflation to 2.5-3.5 per cent in July 2024 and August 2024," Nayar said.

(With inputs from PTI)