May retail inflation likely to be around 5%, vegetable prices continue to trouble

Retail inflation based on the Consumer Price Index (CPI) is likely to have risen to around 5 per cent in May mainly on account of rising vegetable prices. The Statistics Ministry will make the data public on Wednesday.

Headline inflation was 4.8 per cent in April and 4.3 per cent in May, last year.

Vegetable prices have recorded a rise. Potatoes and onions are becoming costlier. Experts say the ongoing heatwave is likely to impact prices of vegetables which could go up even further. Vegetables have a weight of over 6 per cent in retail inflation. Apart from vegetables, cereal (over 12 per cent weight) prices have again started inching up. Though pulses (around 3 per cent weight) prices are down, inflation continues to be in double digit.

Tension on inflation front on account of higher food prices was also reflected in RBI Governor’s statement after the Monetary Policy Committee (MPC) meeting last week. It was said that CPI headline inflation softened during March-April, though persisting food inflation pressures offset the gains of disinflation in core and deflation in the fuel groups. Despite some moderation, pulses and vegetables inflation remained firmly in double digit. Vegetable prices are experiencing a summer uptick following a shallow winter season correction. The deflationary trend in fuel was driven primarily by the LPG price cuts in early March. Core inflation softened for the 11th consecutive month since June 2023.

Summer crop

The exceptionally hot summer season and low reservoir levels may put a stress on the summer crop of vegetables and fruits. The rabi arrivals of pulses and vegetables need to be carefully monitored. Global food prices have started inching up. Prices of industrial metals have registered double digit growth in the current calendar year so far. These trends, if sustained, could accentuate the recent uptick in input cost conditions for firms.

On the other hand, the forecast of above normal monsoon bodes well for the kharif season. Wheat procurement has surpassed last year’s level. The buffer stocks of wheat and rice are well above the norm. These developments could bring respite to food inflation pressures, particularly in cereals and pulses. The outlook on crude oil prices remains uncertain due to geopolitical tensions, RBI Governor said.

In a report on MPC, CRISIL said that the recent easing was primarily because of non-food inflation, which stood at 2.4 per cent in April. In contrast, food inflation was much higher, at 8.7 per cent. A recent heatwave and low water reservoir levels have continued to keep the MPC vigilant of risks to food prices, it said.

Monsoon factor

Nevertheless, the MPC noted the India Meteorological Department’s above-normal monsoon forecast as a factor in easing food price pressures. There is still uncertainty on the crude oil price front amid geopolitical uncertainities. It is also monitoring the recent uptick in global commodity prices, as an upside risk for rising cost pressures for companies could be passed on to retail prices, the report added.