Retail inflation rate, as measured by consumer price index (combined), surged to a 21-month high of 5.76 per cent in May on account of an increase in prices of food and beverages, mainly vegetables and pulses. Combined food price index-based inflation rate for May rose to 7.55 per cent from 6.40 per cent a month ago.
According to data released by the Central Statistics Office (CSO), retail inflation for April has been revised upwards to 5.47 per cent from the earlier 5.39 per cent, while that for May 2015 stood at 5.01 per cent.
Vegetable price inflation rose 10.77 per cent in May from 4.82 per cent a month ago, while inflation rate for pulses increased 31.57 per cent in May from 34.13 a month ago. Cereals and products inflation rose 2.59 per cent as against 2.43 per cent in April. Prices in fuel and light segment eased during the month. The Reserve Bank of India (RBI) in its monetary policy review on June 7 had left key policy rates unchanged citing more-than-seasonal jump in food prices in April. It had also highlighted the uncertain trajectory of inflation going ahead after the surprise increase seen in April.
“The inflation surprise in the April reading makes the future trajectory of inflation somewhat more uncertain. The expectations of a normal monsoon and a reasonable spatial and temporal distribution of rainfall, along with various supply management measures and the introduction of the electronic national agriculture market (e-NAM) trading portal, should moderate unanticipated flares of food inflation. In addition, capacity utilisation indicators suggest that the available headroom in industry could keep output prices subdued even as demand picks up. Nonetheless, there are upside risks – firming international commodity prices, particularly of crude oil; the implementation of the 7th Central Pay Commission awards which will have to be factored into projections as soon as clarity on implementation emerges; the upturn in inflation expectations of households and of corporates; and the stickiness in inflation excluding food and fuel,” RBI had said.
Inflation rates in April and May have been higher than the 5 per cent inflation target set by the RBI for March 2017. Economists said the rise in May has been mainly on account of food prices, which are likely to soften going ahead due to favourable base effect. “Even though food inflation increased in May, core inflation recorded a decline. Going forward, prices are likely to soften owing to favourable base effect,” Kotak Mahindra Bank’s Economist Upasna Bhardwaj said.
Aditi Nayar, Senior Economist, ICRA said, “CPI inflation is expected to print in the range of 5.5-6.0 per cent in June-July 2016, with food prices likely to remain firm during those months. Moreover the rise in the service tax rate and retail prices of petrol and diesel would add some upward pressure to CPI inflation. From August 2016 onward, we expect food inflation to soften on account of a number of factors, including a favourable base effect. Moreover, incoming data on the distribution of rainfall and pace of sowing may dampen food inflation, particularly if higher MSPs are successful in boosting the acreage of high-inflation items such as pulses.”