NEW DELHI (Business Desk): In welcome relief for households and policymakers, India’s Consumer Price Index (CPI) inflation softened significantly to a one-year low of 4.75% in May 2024. This crucial data, released by the National Statistical Office (NSO) on June 12th, marks the third consecutive month of decline and fuels hopes of potential interest rate cuts later this year, though stubborn food prices remain a concern.
The dip below 5% brings inflation closer to the Reserve Bank of India’s (RBI) 4% target, easing pressure on family budgets strained by high costs. However, economists caution that the monsoon’s performance and global oil prices will be critical in sustaining this trend.
Food Inflation: The Persistent Stumbling Block
While overall inflation cooled, the food price basket remains a significant pressure point. Food inflation moderated slightly to 8.69% in May from 8.70% in April, but is still uncomfortably high for consumers.
- Vegetables: Prices surged 27.33% year-on-year (though slightly lower than April’s 27.8%).
- Pulses: Continued their sharp climb, inflating by 17.14%.
- Cereals: Rose by 8.69%.
- Fruits: Increased by 4.58%.
- Meat & Fish: Went up by 7.96%.
- Eggs: Saw a notable jump of 7.92%.
- Spices: Moderated but remained elevated at 4.81%.
Core Inflation Softens Notably
A key positive development was the continued easing of core inflation (excluding volatile food and fuel). Estimated to have fallen to around 3.1-3.2% in May, its lowest level in the current data series, this indicates softening price pressures in manufactured goods and services like clothing, housing, and transport. This provides significant comfort to the RBI.
Fuel & Light Costs Provide Relief
The fuel and light category saw inflation dip to -3.4% in May, down from -4.2% in April. This deflationary trend, primarily driven by government interventions on LPG cylinder prices and stable kerosene costs, contributed positively to the overall headline number.
Rural vs. Urban Divide Persists
Inflation remains higher in rural India (5.28%) compared to urban areas (4.15%). This gap, largely driven by higher food inflation impacting rural households more significantly, highlights the uneven nature of price pressures across the country.
RBI’s Stance: Wait-and-See Likely
Despite the positive trajectory, analysts widely expect the RBI Monetary Policy Committee (MPC) to maintain the repo rate unchanged at 6.5% in its upcoming meeting. Governor Shaktikanta Das has consistently emphasized the need for durable inflation convergence towards the 4% target, particularly wanting assurance on the sustainability of lower food prices. The central bank will closely monitor the progress of the monsoon, crucial for summer crop sowing and food output.
The Road Ahead & Market Outlook
The May inflation print is undeniably positive, boosting market sentiment and raising hopes for eventual monetary easing, potentially in late 2024 or early 2025. However, the path remains fraught with risks:
- Monsoon Dependency: A deficient or erratic monsoon could swiftly reverse gains in food prices.
- Global Commodity Volatility: Geopolitical tensions and oil price fluctuations remain external threats.
- Heatwave Impact: Continued extreme weather could affect perishable vegetable supplies.
While the easing inflation provides breathing room, sustained vigilance and favourable weather conditions are essential for India to achieve lasting price stability and pave the way for growth-supportive rate cuts. The focus now shifts to June data and the monsoon’s progress.
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