Retail Inflation Eases To 7.04 Per Cent In May From 7.79 Per Cent In April, Shows Govt Data

Inflation stayed well above the Reserve Bank of India's upper tolerance limit for a fifth consecutive month, as lower fuel prices offset surging food costs

The RBI on June 8 announced to hike the key policy rate by 50 bps to a two-year high of 4.9 per cent as it doubled down to contain surging inflation that has soared in the past couple of months. ( Image Source :Getty )

India's Consumer Price Index (CPI)-based inflation eased to 7.04 per cent in May from April’s near-eight-year high of 7.79 per cent, thanks to a favourable base effect, data released by the Ministry of Statistics and Programme Implementation on Monday showed. However, inflation stayed well above the Reserve Bank of India's (RBI’s) upper tolerance limit for a fifth consecutive month, as lower fuel prices offset surging food costs.

The retail inflation (which is calculated on consumer price index) for April 2022 was almost double, compared to CPI inflation of April 2021, which was 4.23 per cent. In May 2021, the retail inflation stood at 6.3 per cent.

The central government late last month announced some changes to the tax structure levied on essential commodities and slashed fuel tax to cushion consumers from rising prices and fight high inflation.

The RBI on June 8 announced to hike the key policy rate by 50 basis points (bps) to a two-year high of 4.9 per cent as it doubled down to contain surging inflation that has soared in the past couple of months.

During his speech, Governor Shaktikanta Das, who was leading the central bank's MPC, mentioned that the inflation projected at 6.7 per cent for FY23, while adding that upside risk to inflation persists, with a recent spike in tomato, crude rates fuelling price rise.  

After a surprise 40-basis-point hike at an unscheduled meeting in May, the RBI said inflation will likely remain above its 6 per cent upper tolerance band until December this year.

Sharp spike in prices of wheat, tomatoes, potatoes, and other vegetables, the key ingredients in every Indian kitchen, kept inflation elevated in May as well. Crop yields are also down because of dry spells and heatwaves in northern India.

On the other hand, US consumer price index is a closely watched inflation gauge. The US Fed has already signalled its plans for big increases in the benchmark borrowing rate, due on Wednesday and next month.

However, chances are rising that the US Fed might have to be even more aggressive. The Fed doesn't have great options and is reluctant to entertain 75 basis-point hikes.