India witnessed a significant reduction in headline retail inflation in May 2024, with the rate dropping to a 12-month low of 4.75%. Data released by the Ministry of Statistics and Programme Implementation on June 12 revealed this notable decline.
Persistent Decline in Inflation
Despite minimal changes in food inflation levels, which remained relatively high at 7.9% in May, the headline retail inflation showed a noteworthy decline. This marks the lowest rate since May 2023, indicating a consistent downward trend for the past three months, with inflation staying below the 5% mark since March 2024.
Core Inflation Hits All-Time Low
Core inflation, excluding volatile components like food and fuel, reached an all-time low of 2.97%. This trend suggests underlying demand imbalances and economic gaps, as observed by Madhavi Arora, lead economist at Emkay Global.
RBI’s Inflation Projections
In its recent policy review, the Reserve Bank of India (RBI) maintained its FY25 inflation projection at 4.5%, highlighting the persistent challenge of sticky food prices. The downward trajectory of retail inflation was partially attributed to a contraction in the fuel and light category, which decreased by 3.83% in May compared to the previous month.
May CPI Internals
Among food items, while vegetable prices saw a marginal decline to 27.33% in May, pulses experienced a slight increase to 17.14%. However, meat and fish prices witnessed a significant drop to 7.28% from April’s 8.17%.
Outlook and Analysis
Aditi Nayar, Chief Economist at ICRA, noted the unexpected ease in headline CPI inflation, driven largely by a lower-than-anticipated print for the food and beverages group. However, she emphasized the need for vigilance, especially considering ongoing heatwaves and low reservoir levels, which could impact fruit and vegetable prices.
Looking Ahead
Emkay Global’s Arora speculated that the headline CPI for FY25 might undershoot the RBI’s inflation expectation of 4.5% by 10-20 basis points, provided a normal monsoon and moderate commodity price increases.
As India navigates through these fluctuations, monitoring inflation trends remains crucial for policymakers and economists to ensure economic stability and address the needs of the populace.
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