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CPI Inflation Ticks Up To 3% As Food Prices Rise

While India retail inflation accelerated in May, core inflation remained subdued due to weak demand conditions in Indian economy.



A vendor fills a bag with vegetables at a market in Ahmedabad (Photographer: Dhiraj Singh/Bloomberg)
A vendor fills a bag with vegetables at a market in Ahmedabad (Photographer: Dhiraj Singh/Bloomberg)

India’s retail inflation accelerated in May as food prices continued to rise from unusually low levels. However, core inflation remained subdued due to weak demand conditions in the Indian economy.

Consumer Price Index inflation stood at 3.05 percent in May compared with 2.99 percent in April, according to data released by the Ministry of Statistics and Program Implementation on Monday. A Bloomberg poll of economists had forecast India’s retail inflation at 3.05 percent in May.

Despite the pick-up, CPI inflation remains below Reserve Bank of India’s target of 4 (+/-2) percent, leaving room for the Monetary Policy Committee to cut rates further. The policy repo rate has been pared by a cumulative 75 basis points in 2019 in response to weaker growth and subdued retail inflation.

Reflecting the weak demand conditions, core inflation, however, fell further to 4.2 percent. This is the lowest in about 22 months.

As expected, core inflation continued to slow reaching a 22-month low of 4.2 percent reflecting slowing demand conditions. We do expect Headline CPI inflation to rise led by higher food inflation while core inflation remains on deceleration path.
IDFC Economic Research

Inflation Internals

Rural inflation remained subdued at 1.86 percent in May versus 1.87 percent in April. Urban inflation was higher at 4.51 percent compared with 4.30 percent last month.

  • CPI food inflation rose to 1.83 percent in May from 1.3 percent in April. On a month-on-month basis, the CPI food index rose 1.24 percent, suggesting acceleration in food prices.
  • Clothing and footwear inflation was at 1.8 percent compared to 2 percent.
  • Fuel and light inflation stood at 2.48 percent compared to 2.5 percent.
  • Housing inflation stood at 4.82 percent compared to 4.7 percent.
  • Inflation in the households goods and services segment stood at 4.59 percent versus 5 percent.
  • Inflation in the transport and communication segment came in at 1.63 percent compared to 2.4 percent.

A notable change in trend over the last few months has been the sequential rise in prices of vegetables, fruits and now pulses. The index level for each of these segments continued to rise in May, suggesting rising prices on a month-on-month basis. The monetary policy committee, in its April resolution, had noted the broad based pick up in food prices, which has pushed up inflation in this segment.

Food inflation ticked up further to 1.8 percent year-on-year, backed by sequential increase in vegetables (4.8 percent), meat and fish (2.1 percent), and pulses (2.0 percent). The food inflation seasonal uptrend will likely continue in the near term, albeit stay benign overall, partly reflecting the structural change in food inflation dynamics.
Edelweiss Securities
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