CPI inflation eases to 12-month low of 4.75% in May, trend remains same

The consumer price index (CPI) based inflation for the month of May fell to 4.75 per cent in May compared with 4.83 per cent in the previous month, according to Government data. This is a 12 months low.

Last week, the Reserve Bank of India (RBI) had retained the key lending rates at 6.5 per cent citing that inflation remains far from its medium-term target. Also, the core inflation or non food, non-oil inflation fell to 2.97 percent, the data showed.

However, the Consumer Price Food Index or CPFI remained almost flat at 8.69 percent versus 8.7 percent a month ago. “CPI inflation at 4.75% is slightly lower than the market expectation of 4.90%. Food inflation continues to run around 8.90% levels,” said Murthy Nagarajan, Head-Fixed Income, Tata Asset Management.

“Given strong GDP growth expectation of 7.2% in the current year by RBI, this data may not have any meaningful impact on debt markets. Good and Normal distribution of monsoons in India is required to bring CPI food inflation down as global food prices have started moving up,” Nagarajan said.

“Looking ahead, a favourable base effect is expected to persist until July 2024, helping absorb potential upward risks to price pressures to a certain extent. For FY25, we expect inflation to average 4.8%. If food inflation moderates, we expect the RBI to cut the policy interest rate by a shallow 50 bps in two tranches in the second half of the fiscal year,” Rajani Sinha, Chief Economist, CareEdge said.