India's retail inflation at 12-month low, IIP holds steady at 5%

India's retail inflation eased slightly to a 12-month low in May with prices of some food items moderating marginally, while the index of industrial production (IIP) growth held steady at 5% level in April.
Data released by the National Statistical Office (NSO) showed retail inflation, as measured by the Consumer Price Index (CPI), rose an annual 4.8% in May, nearly at the same level as the previous month. Rural inflation was higher at 5.3%, while urban was at 4.2%. The food price index was at 8.7%, similar to the level in April.
This is the ninth consecutive month when retail inflation has been below the 6% upper tolerance level of RBI. The data showed food and beverages inflation at 7.9%, while fuel and light contracted 3.8%. Vegetable prices continued to be a concern, rising an annual 27.3% in May, while pulses and products rose 17.1% during the month. Core inflation, which is estimated after stripping out food and fuel, was steady at 3.1%. Vegetable prices have come under pressure due to the heatwave sweeping parts of the country.
“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 basis points in two tranches in the second half of the fiscal year,” said Rajani Sinha, chief economist at ratings agency CareEdge.