India’s Retail Inflation: Eases to 4.75% in May, Lowest in a Year

India’s retail inflation records a 12-month low of 4.75% in May, as per government records. This is slightly lower than the 11-month low in April of 4.83%. The number remains within the RBI’s tolerance band of 2-6%. The inflation rate, however, remains unchanged at 0.48% in May. Other records that impact the aggregate retail inflation are vegetables, cereals, food & beverages, clothing &footwear, housing, health, etc. The food inflation rate in May, which accounts for nearly half of the overall consumer price basket, has eased to 8.62% from 8.75% in April. The rural inflation rate dipped to 5.28% in May while the urban inflation rate stood the same at 4.15%. Due to the rise in prices of onion, tomato, and potato, the average cost of a home-cooked vegetarian plate rose to 9% in May. One of the major reasons, for the 12-month low of retail inflation, is the -3.83% inflation rate of Fuel & Light.

Retail Inflation

Retail Inflation refers to the rate of inflation based on the consumer price index (CPI). CPI tracks the change in retail prices of goods and services that households purchase for their daily consumption. It is one of the most important measures to ascertain the economic wealth of the nation and is based on the weighted average of the prices of the commodities. The Central Bank, RBI, regulates and monitors the figures for the price stability in the economy. 

Implication:

RBI also reported that the hot summer season and low reservoir levels put stress on the crops, in its latest monetary policy statement. The prices have led RBI to keep a constant interest for 8 straight policy meetings and are expected to hold such rates until October- December. Thus, containing these food prices should be a key focus of the newly-elected government.

Conclusion:

As the outlook for food inflation brightens due to the highly anticipated monsoon season, the distribution of said- monsoon needs to be taken into account. Moreover, the increase in global commodity prices of gold, silver, and other industrial metals has raised concerns about RBI’s plan to bring retail inflation down to 4%.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions