Retail inflation hits 4 month-high at 4.87% in May

India’s retail inflation hit a four-month high after jumping to 4.87 percent in May from April’s 4.58 percent driven by costlier food and fuel, data released by statistics office showed.

Retail inflation, measured by Consumer Price Index (CPI), had fallen to 2.18 percent in May 2017.

CPI is the main price gauge that the Reserve Bank of India (RBI) tracks. May’s data is an indication that inflation, which is close to 5 percent, is inching towards the apex bank’s upper tolerance level of 6 percent.

Consumer food price inflation, a metric to gauge changes in monthly kitchen costs, grew 3.10 percent in May from 2.80 percent in April, as compared with (-) 1.05 percent a year ago.

Core inflation — comprising non-food and non-fuel components — was at a 45-month high, at 6.17 percent, leaving less room for a rate cut by the central bank.

Last week, RBI revised CPI inflation estimated for 2018-19 and projected it at 4.8-4.9 percent in April-September and 4.7 percent in the second half of the year, including the house rent allowance (HRA) impact for central government employees

Factoring in this uptick in inflation, the monetary policy committee raised the central bank’s benchmark repo rate by 25 basis points to 6.25 percent. The apex bank also said that the pick-up in the momentum of inflation, excluding food, fuel and HRA has imparted persistence into higher CPI projections for 2018-19.

Prices of vegetables grew 8.04 percent in May 8.04 percent, as compared with 7.29 percent in April, while fruits’ prices rose 12.33 percent in May from 9.65 percent a month ago.

According to Devendra Kumar Pant, Chief Economist at India Ratings, food inflation is contingent upon the progress of 2018 monsoon over space and time.

“An even spread over space and time will reduce pressure on food inflation. It is likely that the June 2018 inflation number may breach RBI’s April-September inflation forecast of 4.8 percent-4.9 percent,” Pant said.

He also expects some moderation in crude oil prices and some stability in currency is likely to provide relief in coming months.

Pulses continued witness deflation and contracted (-) 11.57 percent in May from (-) 13.4 percent a month ago. Similarly, sugar prices fell (-) 8.12 percent in May from (-) 4.05 percent in April as price of the sweetener crashed across states, owing to a surge in domestic production due to a bumper harvest of the sweetener.

With plummeting prices, mills have not been able to pay cane arrears to the farmers, which has already touched about Rs 22,000 cr. The government has also approved Rs 7,000 crore bailout package for the sugar sector.

Fuel inflation grew at 5.80 percent in May from 5.24 percent in April. Transportation and communication costs grew 5.31 percent in May from 4.55 percent a month ago, mainly due to higher petrol, diesel prices.

Similarly, clothing and footwear inflation was 5.47 percent in May from 5.11 in April.moneycontrol