India’s consumer price index (CPI) based inflation will continue to trend lower in May 2023, driven largely by base effects, a more manageable seasonal rise in food prices, and sequential easing in energy costs, say economists. The latest CPI inflation print may even touch two year low for the month under review, they added.

The official CPI data is expected to be released by the National Statistics Office (NSO) on Monday evening. It is expected to be lower than the 18-month low of 4.7 percent in April 2023, they said.

The latest CPI print will come close on the heels of the Reserve Bank of India (RBI), on June 8, making a slight downward revision to its inflation forecast for FY24, lowering it by 10 basis points to 5.1 per cent.

Also read: Centre hikes kharif crops’ MSP by 5-10%; does not see impact on inflation

The Central Bank also cut its April-June 2023 Consumer Price Index (CPI) inflation forecast to 4.6 per cent from 5.1 per cent. The July-September 2023 CPI inflation forecast was cut to 5.2 per cent from 5.4 per cent. However, there was no change from RBI as regards October-December 2023 CPI inflation forecast, which was retained at 5.4 per cent. RBI had also retained the January-March 2024 CPI inflation forecast at 5.2 per cent.

“We expect the moderating trend in CPI inflation to continue in May, and forecast headline inflation at 4.34% y/y, down from 4.7% in April,” said Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays, in a note. He added, “If realised, it would be almost a two-year low for CPI inflation”.

Barclays estimates that food inflation eased to 3.5% y/y (April: 4.2%), largely due to a high year earlier base. Sequentially, prices are likely to have increased faster than in April, at 0.77 percent month-over-month.

Also read: Consumers expect inflation to remain high: RBI survey

Within the food basket, momentum varies: persistent price rises in perishables, such as fruits and vegetables, plant and meat protein (pulses, milk and meat, fish, and eggs) and spices, contrasts with continued declines in prices of vegetable oils.

Some of the sequential rise in food can be attributed to seasonal elements: Fruits and vegetable prices typically rise in summer as supply reduces. Milk prices have seen consistent price rises since last year (owing to higher fodder costs and lumpy skin disease in cattle) and are expected to remain under pressure in the near term as the summer season usually sees tight supply. 

Chicken and egg prices have partially rebounded in May after crashing in the previous three months owing to the effects of a heatwave, which after a period of weighing down on inflation, is exerting some upward pressures, according to Barclays.

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