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India's headline retail inflation eased to the lowest level in a year, at 4.75 percent, in May 2024, according to data released by the Ministry of Statistics and Programme Implementation on June 12. This marks a decline from the 4.83 percent inflation rate recorded in April 2024.
The downward trend in inflation is partly attributed to a contraction in the fuel and light category, which saw a 3.83 percent decline in May compared to the previous month. However, food and beverages inflation remained unchanged at 7.87 percent, indicating ongoing challenges in controlling food prices.
Core inflation, which excludes volatile components such as food and fuel, reached an all-time low of 2.97 percent, reflecting some demand imbalances and gaps in the economy. This suggests that underlying inflationary pressures are relatively contained.
The Reserve Bank of India (RBI) has maintained its inflation projection for FY25 at 4.5 percent but has acknowledged that food prices could continue to pose challenges. The central bank's policy stance will likely be influenced by the trajectory of inflation in the coming months.
The Index of Industrial Production (IIP) growth slowed to 5 percent in April, the lowest in three months, as against 5.4 percent in March. This suggests a moderation in industrial activity, which could have implications for economic growth.
Among food items, vegetable prices eased slightly to 27.33 percent in May, while pulses saw a slight increase to 17.14 percent. Meat and fish prices declined significantly to 7.28 percent last month from 8.17 percent in April.
Despite the overall stability in food and beverages inflation, seven of the 12 sub-groups, including spices, meat and fish, and vegetables, witnessed a cooling in their inflation prints. However, this marks the seventh consecutive month of inflation above 7.0 percent for food and beverages.
Economists have expressed concerns about food prices remaining a concern, particularly due to ongoing heatwaves and low reservoir levels that could impact fruit and vegetable prices. The monsoon's performance and global commodity price movements will also be key factors to watch in the coming months.
Overall, the latest inflation data provides some relief as headline inflation remains below the RBI's target of 4.0 percent. However, the persistence of high food prices and the slowdown in industrial growth indicate that challenges remain in achieving sustained economic recovery.
The government and the central bank will need to continue monitoring the inflation situation closely and take appropriate policy actions to ensure price stability and support economic growth in the medium term.
Source: Retail inflation eases to 12-month low of 4.75% in May