Assuming favourable monsoon conditions, India’s food inflation is expected to decline, while non-food inflation remains stable due to low commodity prices
Retail inflation in India is projected to experience a moderation, contingent on the assumption of a normal monsoon season. Recent data suggests that food inflation could soften significantly, providing relief to consumers. The Consumer Price Index (CPI) inflation slightly decreased to 4.75 per cent in May from 4.8 per cent in April, supported by stable non-food prices.
Despite high prices for key food categories like cereals and pulses, which have maintained food inflation above 8.5 per cent for four consecutive months, the timely arrival of the southwest monsoon is expected to ease these pressures. The high base from June onwards is likely to support this downward trend, with a sharper easing depending on the monsoon’s progression.
Non-food inflation has continued to offer respite, hitting a record low of 2.3 per cent, largely due to core inflation easing to 3 per cent, another record low. The stability in commodity prices is expected to keep non-food inflation soft, despite potential statistical upticks. However, geopolitical developments remain a risk factor, as escalations could drive up commodity prices and disrupt supply chains.
For the current fiscal year, inflation is expected to average around 4.5 per cent. Key data points from May indicate that food inflation remained high and unchanged at 8.7 per cent, while fuel prices fell by 3.8 per cent year-over-year. Core CPI inflation eased further to 3.0 per cent from 3.2 per cent, with significant reductions in several key categories, including housing, health and education.
The overall outlook suggests that assuming normal monsoon conditions, food inflation should soften, providing much-needed relief to consumers. Meanwhile, non-food inflation, though potentially seeing minor statistical increases, is expected to remain manageable due to benign commodity prices.
