CPI prints lower in May, but above RBI’s target for the fifth month

Inflation based on the Consumer Price Index (CPI) moderated to 7.0% in May, compared with 7.8% the previous month.

A high base of last year, along with softening of sequential momentum, moderated the inflation print. Significant easing was seen in fuel¹ and core² inflation.

Despite the moderation, the inflation print remained a full percentage point above the upper limit of the Reserve Bank of India’s (RBI’s) 2-6% target. It has been above the target for five month on the trot now.

The inflation outlook for this fiscal remains worrisome. We expect CPI inflation to average 6.8% in fiscal 2023, up from 5.5% in the previous year, as weather shocks add to high international commodity prices amid raising supply pressures. Food inflation faces significant upside risk after a heatwave affected production of several food items in the country, including major ones such as wheat and tomatoes. Persistently high international prices for several agriculture, energy, and industrial commodities will translate to broad-based pressure on retail prices as well. Also, the monsoon, while expected to be normal, will need to be monitored for intensity and distribution.

¹ Refers to CPI fuel and light
² CPI excluding food and beverages and fuel and light