May retail inflation to cool down but remain above MPC's target: Poll

Reuters poll of 45 economists shows CPI for June is likely to come in at 7.1%; Excise cuts on fuel, duty cuts on other items may have helped cool down inflation

Consumer Price Index-based inflation (CPI) for the month of May 2022, expected later today, may have come down from the eight-year high of 7.8 per cent in April. It is, however, still anticipated to be above the Monetary Policy Committee’s medium-term inflation target of 4 (+/-2) percent for the fifth straight month.

According to a poll of 45 economists by news agency Reuters, CPI for June is expected to come in at 7.1 per cent, justifying the MPC’s recent rate hikes. The excise duty cuts on petrol and diesel and duty cuts on other items may have played a part in cooling down inflation.

The data released by the National Statistical Office for April had showed that the food inflation rate spiralled to 8.38 per cent as prices of edible oils and vegetables shot up by 17.3 per cent and 15.4 per cent, respectively. Fuel inflation also breached the double-digit mark at 10.8 per cent in April due to rising retail prices of petrol, diesel, and cooking gas even as crude oil prices softened from March.

Some of these categories are expected to come down due to the cut in petrol and diesel prices and their impact up and down the value chain.

Last week, the six-member MPC unanimously voted to increase the benchmark policy rate by 50 basis points thereby taking the repo rate to 4.90 per cent. While the real GDP growth forecast for FY23 has been retained at 7.2 per cent, the inflation projection for the year has been increased to 6.7 per cent. The MPC noted that inflation is likely to remain above the upper tolerance band of 6 per cent through the first three quarters of FY23.

However, the biggest indicator that inflationary pressures will continue is that crude prices continue to be elevated. The Indian crude basket, despite having more share of Russian supplies, has touched a 10-year high of $121 a barrel. Globally, benchmark crude was still above $118 a barrel, with many expecting sustained levels of $110 plus in the months to come.

This week, the United States Federal Reserve is expected to hike rates amidst liquidity tightening by central banks around the world.