Retail inflation in India eases to two-year low at 4.25 pc in May

NEW DELHI: Retail inflation in India further eased sharply in May to 4.25 per cent, hitting a two-year low. It was at 4.7 per cent in April and 5.7 per cent the previous month. The inflation index for rural and urban was 4.17 per cent and 4.27 per cent, respectively.

The sub-index for oils and fats, fruits declined in May, data released by the Ministry of Statistics and Programme Implementation on Monday revealed.

Retail inflation or (Consumer Price Index) in India peaked at 7.8 per cent in April 2022 to a two-year low now, driven by a reduction in food and core inflation. In some advanced countries, inflation had in fact touched a multi-decade high and even breached the 10 per cent mark.

RBI's consistent monetary policy tightening since mid-2022 could be attributed to the substantial decline in inflation numbers in India. India's retail inflation was above RBI's 6 per cent target for three consecutive quarters and had managed to fall back to the RBI's comfort zone only in November 2022.

Under the flexible inflation targeting framework, the RBI is deemed to have failed in managing price rises if the CPI-based inflation is outside the 2-6 per cent range for three quarters in a row.

Meanwhile, RBI's monetary policy committee last week unanimously decided to keep the repo rate unchanged at 6.5 per cent. The repo rate is the rate of interest at which RBI lends to other banks.

Barring the recent pause, the RBI has raised the repo rate by 250 basis points cumulatively since May 2022 in the fight against inflation.

Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline

A consistent decline in inflation (currently at an 18-month low) and its potential for further decline may have prompted the central bank to put the brake on the key interest rate again.

Further, RBI lowered India's inflation projection for 2023-24 to 5.1 per cent against its April estimate of 5.2 per cent.