The decline in the headline rate occurs despite food inflation remaining high at 7.9 percent in May.
India’s headline retail inflation dropped to a 12-month low of 4.75 percent in May 2024, according to data released by the Ministry of Statistics and Programme Implementation on June 12. This marks a slight decrease from April’s CPI inflation of 4.83 percent. The May figure is the lowest since May 2023 when it was 4.31 percent and has remained below the 5 percent mark for three consecutive months since March 2024.
Core inflation, which excludes volatile items like food and fuel, hit an all-time low of 2.97 percent, indicating some demand imbalances and economic gaps, according to Madhavi Arora, lead economist at Emkay Global. However, the Consumer Price Food Index (CPFI) stayed almost unchanged at 8.69 percent compared to 8.7 percent in April.
In its latest policy review, the Reserve Bank of India (RBI) maintained its FY25 inflation projection at 4.5 percent but warned that food prices could remain high. The downward trend in headline inflation was partly due to a 3.83 percent contraction in the fuel and light category, albeit at a slower pace than the previous month. Meanwhile, food and beverages inflation remained steady at 7.87 percent in May, the same as in April.
“The headline CPI inflation unexpectedly eased to a 12-month low of 4.75 percent in May 2024 from 4.83 percent in April 2024, as all sub-groups except fuel and light either softened or remained unchanged compared to the previous month. The better-than-expected reading (ICRA’s forecast: +5.0 percent) was largely driven by a lower-than-anticipated print for the food and beverages group,” said Aditi Nayar, Chief Economist at ICRA.
The Index of Industrial Production (IIP) growth, data for which was released the same day, slowed to 5 percent in April, the lowest in three months, down from 5.4 percent in March.
May CPI Internals
Among food items, vegetable prices slightly eased to 27.33 percent in May from 27.80 percent in April, while pulses saw a minor increase to 17.14 percent from 16.84 percent. Cereal prices also rose on a month-to-month basis. Meat and fish prices significantly declined to 7.28 percent last month from 8.17 percent in April.
“Although food and beverages inflation remained unchanged in May 2024 compared to the previous month, seven of the 12 sub-groups, including spices, meat and fish, and vegetables, saw a cooling in their inflation rates. However, this marks the seventh consecutive month with a reading above the 7.0 percent mark,” added ICRA’s Nayar.
Sequentially, spice prices in May notably softened to 4.27 percent from 7.75 percent a month ago.
“Food prices still need monitoring due to ongoing heatwaves and low reservoir levels that could stress fruit and vegetable prices,” cautioned Emkay Global’s Arora.
Arora further noted that FY25 headline CPI might undershoot the RBI’s inflation expectation of 4.5 percent by 10-20 basis points, assuming a normal monsoon and a modest rise in commodity prices.
