Retail inflation rises to 21-month high

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Retail inflation, as measured by the Consumer Price Index (CPI), accelerated to 5.76 per cent in May, its highest level in 21 months, driven primarily by rising food prices, making it more unlikely for the central bank to cut rates in the near future

The index came in at 5.47 per cent in April 2016. It was 5 per cent in May last year. The last time the retail inflation was higher was in August 2014 when it crossed 7 per cent. “A jump in food inflation has led to the increase in overall print for inflation,” Richa Gupta, Senior Economist, Deloitte said. “Vegetable prices have moved up over the past one month and inflation (in vegetable prices) has now moved into double digit territory possibly reflecting the effect of the hot weather conditions. Shortage in the sugar market has also moved up prices and could move up further during the festival season.

“Monetary easing in the near term looks difficult especially with expectations rising of a possible rate hike by the U.S. Fed and the effects on monsoons still unclear,” Ms. Gupta said.

Food basket

“Efficient management of the food basket is likely to become crucial for any monetary easing in the future. Expect easing to commence only when the RBI is sure of hitting the 5 per cent target in March next year,” she said.

The data, released by the Ministry of Statistics and Programme Implementation on Monday, shows that inflation in the ‘food and beverages’ segment accelerated to 7.2 per cent in May, the highest it has been in 21 months. It was 6.3 per cent in April.

Overall, only food inflation witnessed acceleration while the other major segments in the index recorded marginal slowdown.The ‘clothing and footwear’ segment saw inflation easing to 5.37 per cent in May, its lowest level in at least four years, compared to 5.56 per cent in April. The housing segment saw a marginal easing of inflation to 5.35 per cent in May, down from 5.37 per cent in April.

Core inflation

“Core inflation moved down imparting a downward bias to the overall print,” Ms Gupta said. “However, this decline could possibly be short lived as the seventh pay commission is implemented and the base effect in certain categories wears off.