CPI Inflation Jumps To Above RBI's Comfort Band
Retail inflation rose more than expected in May, jumping to above India's inflation target.
Retail inflation rose in May, exceeding the MPC's target for the first time since November. Inflation rose more than expected despite weak demand in the economy.
Consumer Price Index inflation rose to 6.3% in May 2021 compared to 4.23% in April, according to data released by the Ministry of Statistics and Program Implementation on Monday. On a monthly basis, the index rose by 1.65% as the gauge climbed to 160.4 in May from 157.8 in April.
Inflation in food and beverages rose to 5.24%, driven by oils and pulses. On a monthly basis, it rose 1.7% from April 2021.
A Bloomberg poll of economists had estimated inflation at 5.38% for May 2021. With the spike in inflation, it is now above the MPC target of 4(+/-2)%.
The 1.6% month-on-month uptick in the CPI in May 2021, which saw widening state level restrictions, is nearly as high as the 1.9% hardening seen in April 2020 during the nationwide lockdown, testing the assumption that supply disruptions have been limited in the second wave.Aditi Nayar, Chief Economist, ICRA
Core Inflation, which excludes food, fuel and light, rose to 6.34% in May 2021 from 5.17% in April, according to Bloomberg Economics. This was the highest since July 2014.
The "massive 1.5% month-on-month uptick in May 2021is higher than the 1.0% rise in April 2020 amidst the lockdown", Nayar said. Core inflation is expected to remain above 5.0% throughout FY22, she added.
WPI Inflation Rises To 12.94% In May
Inflation Internals
Inflation in the pulses category was at 9.4% in May 2021. The index rose 2.3% over a month ago.
Cereal prices fell 1.4% annually and rose 1.4% monthly.
Vegetable prices contracted 1.9% annually and rose 2.63% monthly.
Fuel and light inflation stood at 11.6% y-o-y and 2.2% compared to a month ago.
Inflation in transport and communication was at 12.4% in May. The index rose 3% compared to the previous month.
Clothing and footwear inflation was at 5.3% in May, with the index rising 2% compared to April.
Housing inflation stood at 3.9%. The index rose 0.1% over the previous month.
Health inflation was at 8.4% in May. It rose 2.2% compared to the previous month.
Rahul Bajoria, chief India economist at Barclays, said that prices had risen across a large variety of goods and services.
Higher food prices were driven by upside surprise in fruit costs. Cereals and pulses, which have a high weight in the inflation index, showed a month-on-month uptick in prices. Edible oil prices continued to rise, as well.
With food prices staying elevated and energy prices continuing to inch higher, we continue to see scope for CPI inflation to remain close to the top end of the band, tracking CPI in June 2021 to around 6.6% year-on-year.Rahul Bajoria, Chief India Economist, Barclays