In a hot and dry June weather in India, respite came in the form of 25-month low retail inflation in May 2023 the RBI. Consumer price index (CPI) or retail inflation in India slowed down to 4.25%, closer to the Reserve Bank of India’s (RBI) comfort level. The Indian central bank is required to maintain inflation at 4% with a tolerance margin of 2% on either side. Rural retail inflation was lower at 4.17% and urban a tad higher at 4.27% in May 2023. Sequentially retail inflation was 0.5% in May 2023.
Food & beverages which constitutes 45.86% of the CPI basket reported 3.29% YoY inflation. Cereals & products, milk, pulses, spices and prepared meals are major contributors in the food & beverages category. But the largest inflation contraction was seen in the oils and vegetable category.
Clothing and footwear, housing and fuel and light reported higher inflation compared to food and beverages category in CPI basket.
Retail inflation reported successive downtrend for a third successive month in a row. Retail inflation getting closer to 4% levels reaffirms that the Indian central bank is on the right path.
RBI had recently paused interest rate hike yet again on June 8, 2023. RBI for a successive second time kept the repo rate at 6.5%. For FY24, RBI has guided 5.1% retail inflation which has been revised down by 10 basis points. With the recent CPI/retail inflation data downtrend over the past two months, RBI is optimistic about the retail inflation trajectory in FY24. But it is subject to stable oil prices and normal monsoons. The El Nino weather conditions might play spoilsport leading to weak monsoons in India. Below normal monsoons will lead to lower crop production and increase in prices. Cereals, pulses and milk prices increase significantly with weak monsoons. As the Indian economy is heavily dependent on monsoons, RBI’s retail inflation target might be on a wobbly path.
