India’s inflation slowed to the lowest on record as food prices continued to soften, adding to expectations that the central bank will cut rates when it meets for a review in August.
Consumer prices declined to 2.18 percent in May from 5.76 percent a year earlier, the Statistics Ministry said in a statement in New Delhi on Monday. That’s slower than the 2.4 percent median estimate in a Bloomberg survey of 38 economists and April’s figure of 2.99 percent.
Food and beverage prices declined by 0.22 percent compared with a 1.21 percent increase the previous month.
Big Picture
Slowing inflation will give the Reserve Bank of India headroom to ease monetary policy in the months to come. Central bank governor Urjit Patel kept the benchmark repurchase rate unchanged at 6.25 percent in a policy review last week, saying the easing of price pressures may be transient.
The RBI cut inflation estimates for the financial year to March 2018 after retail inflation dipped to an historic low in April.
However, concerns over the possible inflationary impact of the implementation of India’s landmark national sales tax on July 1 and yet-to-be-announced salary hikes for state employees remain.
Economist Takeaway
"We expect inflation to continue at low levels through June and July, but we need to see how things pan out in the second half of the calendar year," said Shailesh Kejariwal, Mumbai-based economist at B&K Securities India Pvt.
"The base may reverse from July onwards as we expect minimum support prices for farm products to be raised."
News by Bloomberg, edited by ESM. Click subscribe to sign up to ESM: The European Supermarket Magazine.
