Headline inflation eased for a fourth straight month in May to 4.7 per cent from a year earlier,but a slump in the rupee is likely to restrain the central bank from pruning policy rates on Monday despite the economy slowing to its lowest level in a decade.
Mays WPI inflation reading,the lowest in more than three years,was well below than the annual 4.89 per cent rise reported in April,data released by the Ministry of Commerce and Industry on Friday showed.
Crisil,which dubbed the current slide as temporary,noted that it will be interesting to see how inflation will behave if the rupee ends at 57 to the dollar this fiscal against our current expectations of 54.
In this scenario WPI inflation could move up close to 6 per cent from our forecast of 5.3 per cent, it said in a note.
Inflation in manufacturing products declined to 3.11 per cent in May from 3.41 per cent in April while in fuel and fuel products,it eased to 7.32 per cent as against 8.84 per cent in April.
However,food articles,which have a share of over 14 per cent in the WPI basket,rose to 8.25 per cent in May as against 6.08 per cent in April. The headline inflation for March was revised down from 5.96 per cent to 5.65 per cent.
Although the overall inflation is below the comfort level of the RBI,experts say cuts are unlikely as it would intensify the pressure on prices already reeling under the sharp depreciation in rupee,which can widen the import bill significantly and worsen the current account deficit situation.
The central bank has been under pressure from both the government and the industry to lower key rates for boosting the economy,which is growing at its slowest pace in a decade.
* Food articles,which have over 14% weightage in the WPI rose to 8.25% in May as against 6.08% in April
* Inflation in manufacturing products declined to 3.11% in May from 3.41% in April
* Fuel prices eased to 7.32% in May as against 8.84% in April