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India

India's May retail inflation accelerates to 6.3%, highest in six months

7 minute read

BENGALURU, June 14 (Reuters) - India's retail inflation (INCPIY=ECI) accelerated to 6.3% in May from a year ago, government data released on Monday showed.

Analysts in a Reuters poll had predicted annual inflation at 5.3% for the month. read more

COMMENTARY

SHASHANK MENDIRATTA, ECONOMIST, IBM, NEW DELHI

"Inflation surged to 6.3% in May, breaching the Reserve Bank of India's upper end of the 2-6% target range. Both headline and core measures increased in a broad-based manner. Healthcare cost rose, reflecting higher spending on account of pandemic. Rising crude prices and logistics costs have also led to higher prices, outweighing weaker demand pressures. Higher than expected outturn in inflation is likely to keep the RBI cautious."

"Nonetheless, the price pressures are triggered by supply-side disruption, which are likely to subside as restrictions are eased gradually. As such, this print is not expected to trigger a change in RBI's monetary policy stance."

YUVIKA SINGHAL, ECONOMIST, QUANTECO RESEARCH, DELHI

"Looking ahead, we expect downward pressure on inflation from the anticipated downdraft in food inflation, a negative output gap limiting the passthrough from WPI to CPI inflation, along with demand side price pressures remaining in abeyance for at least the first half for FY22. Having said so, the need for the government to pitch in through supply management of food prices and/or reduction in excise duty on fuel prices to quell some of the price pressures may have turned stronger."

From a monetary policy perspective, the RBI can take comfort from the fact that price pressures are clearly cost-push in nature and not demand-led, thereby allowing it to continue to focus on reviving growth."

RAJANI SINHA, CHIEF ECONOMIST & NATIONAL DIRECTOR – RESEARCH, KNIGHT FRANK INDIA, MUMBAI

"After five months of staying within the RBI's comfort band, CPI inflation for May has again shot up above 6%. The surge in inflation has been across all components including, food, fuel and core inflation. WPI inflation has also inched up sharply in last few months in response to the rise in global commodity prices."

"For businesses, apart from raw material prices, labour price has also gone up in the last few months due to labour shortage. While the demand force in the economy remains weak currently, the concern is that the supply-side factors could continue to put upward pressure on inflation going forward."

MADHAVI ARORA, LEAD ECONOMIST, EMKAY GLOBAL FINANCIAL SERVICES, MUMBAI

"The surge in inflation has been across all components including, food, fuel and core inflation. WPI inflation has also inched up sharply in last few months in response to the rise in global commodity prices."

"For businesses, apart from raw material prices, labour price has also gone up in the last few months due to labour shortage. While the demand force in the economy remains weak currently, the concern is that the supply-side factors could continue to put upward pressure on inflation going forward."

SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI

"The kind of rise is quite surprising and the biggest component has been again the turn around in vegetable inflation. Prices of other food products have also gone up. Inflation is definitely a concern and the RBI is likely to be perturbed by this. But we think that with growth being the focus and the damage done by the second wave, don't think inflation will get much weightage in the policy decision."

KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU

"A closer look at the data gives tell-tale evidence of supply side disruption playing havoc with retail prices. Despite weak demand condition and inability of producers to pass on rising input costs, inflation continues to stay elevated mainly due to supply disruptions and an inordinately high level of tax on petroleum products."

"While this calls for the RBI bringing all options on the table, including a rate hike, we think that the central bank would continue to believe that the 6% plus inflation is transient and would bank on it dropping within their comfort zone soon there by likely delaying a rate hike."

"While we expected the RBI to opt for a rate hike during 2Q22, there is a high possibility of an early rate cut though we believe RBI would like to explore all options to not hike policy rate in 2021."

PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI

"May CPI is a full percentage point higher than our and street expectations. What is worrying is that the surprise is not narrowly driven by food or fuel, instead it is across the board bump-up in prices. Clearly, businesses are choosing to pass on higher costs despite demand uncertainty, so to that extent we are likely to see higher average inflation this year and should exert some growth sacrifice."

"In step with global peers, the RBI is likely to look through current inflation uptick since it is mostly cost push and potentially transitory."

GARIMA KAPOOR, ECONOMIST - INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI

"Disruption to supply chains amid localised lockdown and scorching summer drove food inflation to highest sequential increase in seven months. This along with higher sequential prints in sub-indices like fuel and clothing in line with global reflation cycle and adverse base effect drove annualised CPI print to six month high of 6.3%."

"We expect the CPI prints to remain above 5% until September driving the annual average CPI to 5.2% for FY22. We, however, expect the RBI to continue to tolerate inflation prints close to the upper bound of its target as the recovery from the second wave (of the pandemic) is likely to be more gradual and subdued than first wave."

RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCIAL HOLDINGS, MUMBAI

"CPI inflation at 6.30% is way above the general expectations and falsifies the claim that higher WPI does not imply higher CPI. While statistical base is partly responsible, the sequential build up in cost pressures and disruption of supply chains due to the localised lockdowns have contributed a great deal to the retail price rise. Core inflation too has risen to 6.4%. While the RBI will continue to focus on growth, it will have to finetune its inflation projection for FY22 sooner than later."

Reporting by Rama Venkat and Chandini Monnappa in Bengaluru; Editing by Rashmi Aich

Our Standards: The Thomson Reuters Trust Principles.

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