May retail inflation seen steady at 4.8%: Mint poll

India's retail inflation was likely steady at 4.8% in May, compared to 4.83% the previous month, as a sequential rise in food prices was offset by low core inflation, a median estimate of 15 economists polled by Mint showed. If the projection holds true, inflation would have remained above the medium-term target of 4.0% for four-and-a-half years straight, making the Reserve Bank of India (RBI) stay put on the policy repo rate.

Projections from the economists polled by Mint ranged from 4.50% to 5.14%. The official data is set to be released on 12 June.

“Sequential pick up in vegetables along with other key food sub-segments like cereals and pulses kept food inflation elevated. Heatwave effects further boosted food price pressures,” said Kanika Pasricha, chief economic advisor at Union Bank of India, who expects core inflation to stay close to all-time low at 3.3%.

Food constitutes nearly 40% of the inflation basket. Core inflation, which excludes the more volatile food, and fuel and light groups, makes up nearly 50% of the basket.

Food prices have remained elevated for over a year now, primarily due to last year's uneven and below-normal monsoon rains. Food inflation has consistently stayed above 8% since November and may see an uptick in May due to higher prices of pulses, milk, and sugar.

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Even as inflation has consistently moderated since December, the central bank has expressed worries over “overlapping shocks” due to adverse climate events adding uncertainty to the “food inflation trajectory”.  Last week, the central bank's Monetary Policy Committee (MPC) voted to keep the repo rate unchanged at 6.5%. However, two members of the committee, Ashima Goyal and Jayanth R. Varma, voted to reduce the repo rate by 25 basis points as inflation is expected to ease in the coming months.

The RBI sees consumer price index (CPI)-based retail inflation at 4.9% in April-June, 3.8% in July-September, 4.6% in October-December and 4.5% in January-March 2025.

“RBI governor Shaktikanta Das reiterated that the dip in its inflation projection below the 4% target in July-September is owing to a favourable base effect and is likely to be reversed in coming quarters. While the MPC is hopeful that good monsoons will reduce food inflationary pressures, it has flagged upside risks from an increase in input costs and volatility in commodity prices,” said Nomura in a report on 7 June.

Also Read: What will the rising mercury this summer do to Indian inflation?