India's retail inflation eases to a more than 2-year low in May

India's retail inflation eases to a more than 2-year low in May


India's retail inflation eases to a more than 2-year low in May

NEW DELHI (Reuters) - India's annual retail inflation cooled to a more than two-year low of 4.25% in May as cost pressures on food eased, moving closer to the Reserve Bank of India's (RBI) target of 4%, government data showed on Monday.

However, inflation is now expected to pick up again, underlining the central bank's message that tight monetary conditions should remain in place until price pressures cool on a sustainable basis.

Inflation eased to 4.25% in May from 4.7% in April, firmly within the RBI's inflation band of 2%-6% for the third straight month.

Last week, the RBI said it will focus on anchoring inflation close to 4%, the mid-point of the range, as it kept rates on hold for the second straight meeting.

The latest reading compared with 4.42% in a Reuters poll of 45 economists and was the lowest since January 2021.

Food inflation, which accounts for nearly half of the overall consumer price basket, moderated to 2.91% in May against 3.84% in April.

"Food inflation benefited from a sequential fall in the prices of fruits and oils," said Suvodeep Rakshit, an economist at Kotak Institutional Equities.

However, concerns are growing that deficient monsoon rains to feed crops will add pressure on food prices in coming months with signs that the hot, dry weather caused by the El Nino weather phenomenon is threatening farms across Asia.

India's central bank is expected to maintain its pause on interest rates in the current fiscal year, as inflation is likely to range between 4.4%-5.4%, higher than RBI's target, said Devendra Kumar Pant, an economist at India Ratings.

Economists also said a high base effect helped lower the inflation print for May.

The price of vegetables fell 8.2% year-on-year, while edible oil fell 16%, offsetting the rise in cereals, pulses, eggs and milk.

Core inflation, which had been easing after being key concern for months, remained below 6% for a third consecutive month.

According to two economists' estimates, core inflation was 5.02% in May, compared with 5.2% in April.

The Indian government does not release figures of core inflation, which strips out volatile food and energy prices.