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India CPI Inflation Rate May 2021: India’s retail inflation surged to 6.30 per cent in the month of May, over and above the Reserve Bank of India’s (RBI) threshold of 6 per cent, data released by the Ministry of Statistics & Programme Implementation (MoSPI) showed Monday.

The retail inflation, which is measured by the Consumer Price Index (CPI), for the month of April was revised to 4.23 per cent from 4.29 per cent.

This is the first time in six months that the CPI data has come over the Reserve Bank of India’s (RBI) upper margin of 6 per cent. Prior to this, the CPI came below the 6 per cent mark for five consecutive months. The government has asked the central bank to maintain retail inflation at 4 per cent with a margin of 2 per cent on either side for a five-year period ending March 2026.

The CPI data is mainly factored in by the RBI while making its bi-monthly monetary policy. Earlier this month, the Monetary Policy Committee (MPC) of the central bank kept the repo rate unchanged for the sixth time in a row at 4 per cent while maintaining an ‘accommodative stance’ as long as necessary to mitigate the impact of the second wave of the COVID-19 pandemic.

The RBI has projected the CPI inflation at 5.1 per cent during the ongoing financial year 2021-22. It sees CPI inflation at 5.2 per cent in Q1, 5.4 per cent in Q2, 4.7 per cent in Q3, 5.3 per cent in Q4 with risks broadly balanced.

The Consumer Food Price Index (CFPI) or the inflation in the food basket also spiked on-month during May to 5.01 per cent, from 1.96 per cent in April, the data revealed.

The spike in food basket was due to a sharp rise in prices of oils and which climbed 30.84 per cent on-year in May. Apart from this, the egg prices segment saw a rise of 15.16 per cent while that meat and fish gained 9.03 per cent and pulses and products rose 9.39 per cent. The vegetables segment slipped (-)1.92 per cent however fruits grew 11.98 per cent.

Apart from food and beverages, the fuel and light segment rose 11.58 per cent, clothing and footwear gained 5.32 per cent and the housing segment inched up 3.86 per cent.

In a separate economic data released earlier in the day by the Ministry of Commerce & Industry, the wholesale price-based inflation or the WPI accelerated to a record high of 12.94 per cent in May, owing to rising crude oil prices and cost of manufactured goods.

How economists and market experts reacted:

Reacting to the inflation data, Rajani Sinha, Chief Economist & National Director – Research at Knight Frank India said: “After five months of staying within RBI’s comfort band, the CPI inflation for May 2021 has again shot up above 6 per cent. The surge in inflation has been across all components including, food, fuel and core inflation. The WPI inflation has also inched up sharply in last few months in response to the rise in global commodity prices. For businesses, apart from raw material prices, labour price has also gone up in the last few months due to labour shortage. While the demand force in the economy remains weak currently, the concern is that the supply-side factors could continue to put upward pressure on inflation going forward.”

Madhavi Arora, Lead Economist at Emkay Global Financial Services said, “As seen in WPI inflation, CPI food inflation was up sharp 5 per cent partly led by seasonal factors while fuel inflation crossed double digits amid transmission of higher international prices to retail level. Core inflation also saw broad-based increase, making the YoY print high at 6.6 per cent. Rising input costs and higher wholesale inflation will concern the MPC, especially as today’s high inflation print would easily push up the average inflation for FY22 to 5.5+ per cent much higher than RBI’s estimate of 5.1 per cent. However, they may still choose to look through the spike in inflation in the near term, with the monetary reaction function currently hinging more on growth revival becoming sustainable.”

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The IndianExpress

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