Good News for Consumers: Retail Inflation in India at 25-Month Low

New Delhi: India’s retail inflation dropped to a 25-month low of 4.25% in May, primarily due to falling food prices, aligning with economists’ predictions. This brings the consumer price index-based (CPI) inflation closer to the Reserve Bank of India’s (RBI) medium-term target of 4%.

It is noteworthy that retail inflation has remained within the RBI’s comfort zone for the third consecutive month, following its previous levels of 4.7% in March 2023 and 5.66% in February 2023.

The significant decline in retail inflation in May can be attributed to a decrease in food prices. Food inflation, which constitutes nearly half of the consumer price index (CPI) basket, eased to 2.91% in May. In terms of regional variations, rural inflation stood at 4.17% while urban inflation came in slightly higher at 4.27% in May.

This development comes as a relief for the central bank, which chose to keep key rates unchanged in its recent policy review. As a result, the central bank is expected to pause its rate hikes for the rest of the year. However, economists caution that the trend of easing inflation could potentially reverse after May, depending on the impact of El Nino on the monsoon. RBI Governor Shaktikanta Das emphasized the need to closely monitor the inflation situation, particularly considering the uncertain monsoon outlook and the potential impact of El Nino.

In other economic news, the Index of Industrial Production (IIP), a gauge of industrial output, increased to 4.2% in April from 1.1% in March, as per government data.