Inflation eases to 7% in May, but RBI still has reasons to be unhappy

India’s retail inflation eased from 7.79 per cent in April to 7.04 per cent in May on the back of lower food prices, as per government data released on Monday.

This was however higher than the RBI’s upper tolerance level of 6% and has been so for the fifth consecutive month.

In May 2021, the retail inflation was 6.3 per cent.

Inflation in the food basket was 7.97 per cent in May 2022, marginally lower than 8.31 per cent in the previous month.

The Reserve Bank, which factors in the CPI in its monetary policy, had earlier this month raised the inflation forecast for the current financial year to 6.7 per cent from its previous estimate of 5.7 per cent.

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As per the RBI’s projections, inflation in the first quarter of the fiscal is likely to be 7.5 per cent and at 7.4 per cent in the following three months. It is expected to decline to to 6.2 per cent and 5.8 per cent in the third and fourth quarters, respectively.

It had also raised the interest rates for the first time in four years by as much as 90 basis points in two cycles.

As such it is expected that the inflation will fall in the coming months. The government has tasked the RBI to ensure inflation remains at 4 per cent with margin of 2 per cent on either side.

(With agency inputs)