Retail inflation eases to 7.04 per cent in May 2022

There is some good news on the retail inflation front. Having increased successively for the first four months of 2022, the Consumer Price Index (CPI)-based inflation has marginally come down to 7.04 per cent in May in the provisional estimates. The data was released on June 13 by the Ministry of Statistics and Programme Implementation (MOSPI).

However, the situation is far from normal yet. The CPI inflation still remains well above the Reserve Bank of India’s (RBI) Monetary Policy Committee’s (MPC) medium-term inflation target of 4 (+/-2) per cent for the fifth straight month. It has now been above the RBI's medium-term target of 4 per cent for 32 consecutive months.

Even though inflation dropped sharply by 75 basis points in May from the eight-year high of 7.79 per cent in April, all six major groups of the CPI basket registered a sequential increase in their indices. The index for food and beverages went up from 170.8 in April 2022 to 173.3 in May 2022, that for pan, tobacco and intoxicants from 193.9 to 194.1, clothing and footwear from 172.8 to 174.6, housing from 167.0 to 167.6, fuel and light from 172.2 to 174.6, and miscellaneous from 166.8 to 167.5.

The easing of inflation comes mainly on account of softening food prices. Inflation for food and beverages was 7.84 per cent in May 2022.

The CPI-based inflation stood at 7.79 per cent in April, 6.95 per cent in March, 6.07 per cent in February and 6.01 per cent in January. The inflation rate stood at 6.30 per cent in May 2021.

The dip in May 2022 is, however, expected to be temporary and analysts say the RBI remains on track to keep raising interest rates. Crude prices continue to remain high. The Indian crude basket, despite having more share of Russian supplies, has touched a 10-year high of $121 a barrel. Globally, benchmark crude was still above $118 a barrel, with many expecting sustained levels of $110-plus in the months to come.

Also, the good news of the dip in inflation is mainly for rural consumers. For them, the retail inflation fell from 8.38 per cent in April to 7.01 per cent in May. For the households in urban areas, the inflation rate remained rather flat — it dipped by just one basis point from 7.09 per cent in April to 7.08 per cent in May.