Retail Inflation Eases To 7.04% In May: All You Need To Know!

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Inflation has been the cause of worry for investors in India. Yesterday's all, except two NIFTY50 stocks, ended in the red. . The Ministry of Statistics and Programme Implementation has released inflation data for May. How the market will go from here will depend on the upcoming month's inflation data. Let us look at the details.

May inflation data

  • For the month of May, the retail inflation stood at 7.04%, thanks to a favourable base effect.
  • The latest inflation data was in line with the estimate of 7.1% in May.
  • The CPI inflation has now been above RBI's medium-term target of 4% for 32 consecutive months. Inflation has been above 6% (above tolerance range) for five months in a row. 
  • As per the MPC meeting minutes, the average CPI inflation will be outside the 2 to 6% tolerance band for three consecutive quarters.

May inflation across groups

Compared to May, the inflation dropped by 75bps in May. However, all major groups CPI basket food and beverages, clothing and footwear, housing, pan, tobacco, and intoxicants, fuel and light, and miscellaneous registered a sequential increase. Below are the May numbers and MoM changes for all major groups:

 May InflationMoM Change
CPI7.04%0.90%
Food index7.97%1.60%
Cereals5.33%0.80%
   Meat, fish8.23%2.50%
   Oils, fats13.26%1.50%
    Vegetables18.26%5.20%
    Pulses-0.42%0.00%
Clothing, footwear8.85%1.00%
Housing3.71%0.40%
Fuel, light9.54%1.40%
Miscellaneous6.82%0.40%

Below are key highlights:

  • The highest change was seen in two volatile components - food and fuel. The food index increased by 1.5% MoM while that of fuel and light increased by 1.4%. 
  • The food prices of items like cereals, meat and fish, edible oils, and vegetables increased in May due to the heat wave, shortages, and rising input costs.
  • Inflation in vegetables continues to be high at 18.26%, followed by 13.26% in oils and fats as the war in Ukraine continues to pose uncertainty for the global supply chain.
  • Out of the 22 food items on which the Department of Consumer Affairs compiles data, only three saw a month-on-month fall in prices in May.

Future expectation

The RBI has recently increased the repo rate by 50bps to take the total increase to 90bps for FY23. As per economists, the RBI will have to increase the policy rate in the next few meetings which will take the repo rate between 5.5% and 6% by the end of this financial year. 

RBI has projected retail inflation at 7.5% in Q1, 7.4% in Q2, and 6.2% in Q3 to finally come down to 5.8% in Q4.

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