With retail inflation cooling to 7.04 per cent in May as compared with 7.79 per cent in the previous month, experts believe inflation this quarter may be lower than the RBI’s estimate of 7.5 per cent due to the impact of duty cuts, ban on wheat exports, and normal monsoon. They said high-frequency mandi prices so far depict some respite in sequential gains, and policy interventions should cap the potential for sharp upsides in the price of the staples like potato, onion and tomato.
According to the latest official data, retail inflation slightly eased to 7.04 per cent in May. Core CPI inflation fell to 6.2 per cent in May. It stood at 7 per cent in April. Food inflation marginally lowered to 7.97 per cent in May, compared to 8.38 per cent in April. Fuel and light inflation dropped to 9.54 per cent in May, against 10.80 per cent in April. However, vegetable inflation in May jumped to 18.26 per cent, from 15.41 per cent in April.
Sunil Kumar Sinha, senior director and principal economist of India Ratings and Research, said the impact of duty cuts, ban on wheat exports and normal monsoon may provide some comfort on the inflationary front. “India Ratings and Research, however, expects retail inflation to remain higher than 7 per cent even in June 2022.”
On the commodity prices going forward, Madhavi Arora, lead economist at Emkay Global Financial Services, “The high-frequency mandi prices so far depict some respite in sequential gains. On the other hand, the cereal prices have remained contained helped by policy intervention to regulate exports, which along with modest MSP hikes, should cap the potential for sharp upsides at the price of the staples.”
Arora added that this along with some cuts in import duties on a few imported food products and moderation in vegetable oil prices globally should help ease domestic edible oil prices months ahead. “The RBI expects CPI to average 7.5 per cent in the current quarter, which is currently slightly higher than what we currently anticipate.”
Last month, the government exempted customs duty and agriculture infrastructure development cess on 20 lakh metric tonnes yearly import of crude soyabean and sunflower oil, to ease domestic prices.
The rise in crude oil prices and the weakening of the rupee may pose risks to the inflation rate. Brend crude oil futures on Tuesday rose $1.05, or 0.9 per cent, to $123.32 a barrel on fears of tight global supplies ahead.
The rupee on Monday depreciated by 11 paise to close at a fresh lifetime low of 78.04 against the US dollar. However, it has rebounded from its all-time low level and inched higher by 2 paise to 78.02 against the US dollar in opening trade on Tuesday.
Aditi Nayar, chief economist of ICRA, said, “The double whammy of the rise in the crude oil price and the INR depreciation pose upside risks to the June 2022 CPI inflation print, even as the lower than expected momentum in the services inflation in May 2022 provides some relief.”
Wholesale price-based inflation rose to a record high of 15.88 per cent in May on rising prices of food items and crude oil. The Wholesale Price Index-based inflation was 15.08 per cent in April and 13.11 per cent in May last year.
According to an RBI survey, in the regular round of survey, before the excise duty cut on petrol and diesel, households’ three-month ahead expectation and one-year ahead expectation of inflation were 10.8 per cent and 11.1 per cent. However, in another round of the survey (May 24-28) after the excise duty cut, households’ three-month ahead expectation and one-year ahead expectation of inflation stood at 8.9 per cent and 10.1 per cent.
The central government had cut excise duty on petrol by 8 per litre, and 6 rupees per litre on diesel on May 21. Later, several states including Kerala, Rajasthan and Maharashtra followed the suit by cutting value-added tax.
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