Updated: June 14, 2022 5:36:29 am
After rising to a 95-month high of 7.79 per cent in April, retail inflation rate for May moderated to 7.04 per cent, helped by a high base, data released by National Statistical Office on Monday showed. With this print, retail inflation has remained above the upper tolerance level of the RBI’s medium-term inflation target for the fifth consecutive month.
With inflation rate set to remain elevated in coming quarters as well, the RBI is expected to undertake another rate hike in August and may also have to explain its failure to keep the inflation in check to the government if the average inflation rate breaches the 2-6 per cent target for three consecutive quarters, as per the mandate by the monetary policy framework. Though there was moderation from the previous month, food inflation continued to remain high. Core inflation — the non-food, non-fuel component — was at 6.07 per cent, remaining above 5 per cent for the 25th consecutive month. The impact of duty cuts on fuel is expected to show full impact in June’s inflation print and thereafter as it was undertaken on May 22. Combined food price inflation eased to 7.97 per cent in May from 8.31 per cent in April but was up from 5.01 per cent in May 2021. Rural inflation was recorded at 7.01 per cent in May as against 8.38 per cent in April. It also eased to a lower level than urban inflation of 7.08 per cent in May after being higher than urban inflation of 7.09 per cent in April. The highest inflation rate was recorded by Telangana at 9.45 per cent, followed by Maharashtra at 8.52 per cent and Andhra Pradesh at 8.49 per cent.
In May, food and beverages inflation stood at 7.84 per cent as against 8.10 per cent in the previous month. Vegetables and oils and fats inflation stood at 18.26 per cent and 13.26 per cent, respectively, while cereals and products inflation was 5.33 per cent. Fuel and light inflation was 9.54 per cent in May as against 10.80 per cent in April, while clothing and footwear inflation was at 8.85 per cent in May, down from 9.85 per cent in previous month.
Experts said though the base effect is expected to taper off June onwards, rupee depreciation and rise in crude pose upside risks. “While the mild dip in the food and beverages inflation benefitted from a high base, the cooling itself was fairly broad-based across the components. The double whammy of the rise in the crude oil price and the INR depreciation pose upside risks to the June 2022 CPI inflation print, even as lower-than-expected momentum in the services inflation in May 2022 provides some relief,” said Aditi Nayar, chief economist, Icra. It expects RBI to increase the policy rate by 35 bps and 25 bps, respectively, in the next two policy reviews, followed by a pause.
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Sunil Kumar Sinha, principal economist, India Ratings, said inflation print in June is expected to be higher than 7 per cent. “Ind-Ra expects monetary conditions to tighten further in FY23 as RBI pursues its inflation targeting agenda to rein in inflation and bring it in the band of 4%+/- 2%. However, favourable base effect will start tapering off from June till November/December 2022, but impact of duty cuts, ban on wheat exports and normal monsoon may provide some comfort on the inflationary front. India Ratings and Research, however, expects retail inflation to remain higher than 7% even in June 2022,” he said.
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