4.25%, inflation at 25-month low

New Delhi, June 12

Retail inflation declined to a 25-month low of 4.25% in May mainly on account of softening prices of food and fuel items. The gradual decline of the Consumer Price Index-based inflation from 4.7% in April and 5.7% in March has helped reverse the trend in rural areas.

4th month of decline

• This is fourth straight month when retail inflation declined
• At 4.25%, inflation lowest since April 2021 when it was 4.23%
• Food inflation at 2.91% in May, lower than 3.84% in April

This is the fourth straight month when retail inflation has declined and the third month in a row that CPI-based inflation remained within the RBI’s comfort zone of below 6%. At 4.25%, retail inflation is the lowest since April 2021 when it was 4.23%. Inflation in rural and urban areas was at 4.17% and 4.27%, respectively, giving a combined aggregate of 4.25%.

“High inflation was largely driven by food and imported items. In May, imported deflation was 4.2% on a year-on-year basis and food inflation was at an 18-month low of 2.9%. Core services inflation dropped to a 35-month low of 4.2% on a year-on-year basis,” explained economic analyst Nikhil Gupta of the MOFSL Group.

Analysts also attributed the decline to RBI’s monetary policy tightening since May last year that saw an increase of 250 basis points in the repo rate. The gradual decline in the inflation rate had encouraged the RBI’s Monetary Policy Committee last week to keep the base lending rate unchanged at 6.5%.

Another set of statistics released on Monday showed that the Index of Industrial Production (IIP) rose to 4.2% in April from 1.7% in March, mainly due to an upswing in manufacturing and mining sectors. However, on a year-on-year basis, it was lower than the 6.7% in April last year.