May inflation shock at 6.3%; food, fuel among the villains

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The high prices on eggs, edible oil, pulses, fruits, petrol and diesel that an average Indian has suffered in May have severely impacted overall retail inflation figures for the month, government data showed on Monday.

Breaching the ceiling

Food inflation emerged as a villain as retail inflation surged to 6.3%, higher than the ceiling of the 6% that the Reserve Bank of India follows as a matter of policy while formulating the monetary policy.

The food items that became expensive were eggs, oils and fruits.

The May figures were sharply above the projections of RBI stated just 10 days ago. On June 4, RBI projected CPI inflation at 5.1% in 2021-22 and 5.2% in Q1 of the current financial year.

The rate of increase of consumer price index-based inflation since January 2021 has been 4.06%, 5.03%, 5.52%, 4.29% and 6.3%.

Speaking to the media D K Joshi head economist of Crisil said that he was worried about food prices and said it might not go away in a hurry. Most economists said inflation might be a cause of worry.

“Inflation should be the real headache for the government. With millions pushed into poverty by the Covid-19 wave and joblessness growing, RBI has to tailor its policy to tackle inflation first. It hurst the poorest the most,” said Prasunjit Mukherjee, investment expert and chief ideator, Plexus Management Services.

The rise was sharp especially judged against the figures in April when headline inflation registered a dip to 4.29% in April from 5.52% in March. The dip was helped by lower food inflation that fell from 5.2% in March to 2.7% in April as prices of cereals, vegetables and sugar decline on a year-on-year basis.

April’s retail inflation was the lowest in three months. It was also well within the RBI’s target band.

RBI statement

In its statement following the monetary policy committee meeting on June 2 and 4 RBI said, “The rising trajectory of international commodity prices, especially of crude, together with logistics costs, pose upside risks to the inflation outlook. Excise duties, cess and taxes imposed by the Centre and States need to be adjusted in a coordinated manner to contain input cost pressures emanating from petrol and diesel prices.”

“A normal south-west monsoon along with comfortable buffer stocks should help to keep cereal price pressures in check… With declining infections, restrictions and localised lockdowns across states could ease gradually and mitigate disruptions to supply chains, reducing cost pressures….Taking into consideration all these factors, CPI inflation is projected at 5.1% during 2021-22: 5.2% in Q1; 5.4% in Q2; 4.7% in Q3; and 5.3% in Q4: 2021-22,” said RBI in its June 4 statement.

WPI

On May 18, data showed that wholesale price inflation rose to 10.49% in April which was an 11-year high. It rose from 7.39% in March.

Some economists then pointed out that it will impact the CPI inflation with a lag.