May CPI inflation spikes to 19-month high of 5.76%

CPI inflation for April was 5.47%, revised upwards from 5.39% earlier

India’s Consumer Price Index (CPI)-based inflation for the month of May 2016 rose to 5.76 per cent, the highest in 19 months, and the most since the new series of retail inflation with base year of 2012 was introduced from January 2015. CPI inflation for April was 5.47 per cent, revised upwards from 5.39 per cent earlier, and 5.01 per cent in May 2015. Analysts polled by Reuters had estimated May CPI inflation at 5.52 per cent, while those polled by Bloomberg forecast the number at 5.6 per cent.

According to data released by the Central Statistics Office on Monday, retail food inflation or the consumer food price index rose 7.55 per cent, compared to 6.40 per cent in April and 4.80 per cent in May 2015.

The CPI inflation numbers come just days after the Reserve Bank of India (RBI) Governor Raghuram Rajan kept key policy rates unchanged owing to the recent upsurge in prices. The latest data show that the price increases have not been checked and would force the central bank to keep rates on hold despite its wish to cut further.

 

“By not cutting rate of interest in its second bi-monthly review, RBI not only read the writing on the wall correctly but also warned about the looming threat due to food inflation,” said Sunil Kumar Sinha, principal economist at India Ratings & Research.

However, other analysts maintained that the surge in retail prices will be contained by the monsoon. With the monsoon expected to normal and widespread this year after two years of poor rainfall, retail food prices are likely to be favourably impacted and the overall retail inflation might see a fall.

“From August 2016 onward, we expect food inflation to soften on account of a number of factors, including a favourable base effect. Moreover, incoming data on the distribution of rainfall and pace of sowing might dampen food inflation, particularly if higher minimum support prices are successful in boosting the acreage of high-inflation items such as pulses,” said Aditi Nayar, senior economist, Icra.