Headline inflation continued to remain negative for the seventh month in a row in May, as it recorded a decline of 2.36 per cent on account of subdued prices of food items, fuel and manufactured goods. It fuelled demands from the industry for more rate cuts by the RBI. The benchmark BSE jumped 161 points to 26,586.55 on strong factory output data and steady inflation. The NSE Nifty also managed to end above 8,000-level by rising 31 points or 0.39 per cent to 8,013.90 after shuttling between 8,057.70 and 7,944.85 intra-day.
The Wholesale Price Index (WPI) based inflation was (-)2.65 per cent in April. It has been in the negative zone since November 2014. Inflation in last May was 6.18 per cent. The lower inflation comes amid a forecast of deficient monsoon this year. In contrast to IMD’s forecast of 12 per cent deficient rainfall, the onset of monsoon has been reasonably strong so far.
Citigroup said that overall the monsoon is still a risk factor but “we expect CPI (retail inflation) to undershoot RBI’s Jan-16 projection by 40bps and average 5 per cent in 2015-16. This is likely to create room for further 25 bps cut in current fiscal”. The CPI inflation had inched up marginally in May to over 5 per cent from 4.87 per cent in the previous month.
As per the WPI data released by the Government on Monday, vegetable inflation was (-)5.5 per cent, with potato prices falling by about 52 per cent. Protein rich items like egg, meat and fish too were cheaper in May as compared to the previous month and so were milk, fruits, rice and cereals. Overall food inflation was 3.8 per cent, much lower than the previous few months.
Similarly, the May inflation in manufactured items (food products, sugar, edible oils, beverages) declined by 0.64 per cent, lowest in past many months. Inflation in fuel and power basket was at (-)10.51 per cent on annual basis, though slightly up from April. Commenting on the data, ICRA economist Aditi Nayar said the cooling of food inflation in the WPI and Consumer Price Index over the recent months is reassuring in light of continuing uncertainties regarding the monsoon dynamics.