India’s retail inflation rate eased slightly in May, partly helped by fall in fuel prices although food prices remained elevated, government data showed on Wednesday.

Annual retail inflation in May was 4.75 per cent, down from 4.83 per cent in April and lower than 4.89 per cent forecast by 50 economists polled by Reuters.

“Inflation surprised on the downside. Moderation in inflation was led by a moderation in core inflation and a decline in fuel inflation,” Swati Arora, economist at HDFC Bank said.

Food inflation, which accounts for nearly half of the overall consumer price basket, rose 8.69 per cent year-on-year in May, compared with an 8.70 per cent rise in the previous month. Food prices have been accelerating at more than 8 per cent year-on-year since November 2023.

Core inflation, which strips out food and energy prices, was lower at 3.12 per cent in May, according to two economists, as compared with 3.23 per cent in April. The Indian government does not release core inflation figures.

The inflation rate for cereals was 8.69 per cent year-on-year in May, compared with 8.63 per cent in the previous month. Pulses prices rose 17.14 per cent, compared with 16.84 per cent in April.

Vegetable prices rose 27.3 per cent in May, against 27.8 per cent in the previous month. Households’ spending on food items rose in May, with vegetable prices rising 3.2 per cent month-on-month, while pulses prices gaining 1.5 per cent month-on-month, data showed.

The average cost of home-cooked vegetarian food plate rose 9 per cent in May from a year earlier as onion, tomato and potato prices rose, according to CRISIL, the Indian arm of global rating agency S&P.

Containing food prices will be one of the key focus for Prime Minister Narendra Modi, who was sworn in for the third term on Sunday, after intense criticism for not being able to contain prices of essentials hurt his victory margin.

In its latest monetary policy statement, the Reserve Bank of India (RBI) said an exceptionally hot summer season and low reservoir levels may put stress on the summer crop of vegetables and fruits.

The arrivals of pulses and vegetables need to be carefully monitored, the central bank said.

High food prices have led to the RBI keeping its key interest rate unchanged for eight straight policy meetings, as it wants to bring retail inflation down to 4 per cent on a sustainable basis.

Economists expect the central bank to hold rates until October-December.

“The May print is unlikely to be of consequence for RBI’s policy review in August,” said Radhika Rao, economist at DBS Bank.

V K Vijaykumar, Chief Investment Strategist, Geojit Financial Services, Ernakulam, said, “The decline in CPI inflation to 4.75 per cent in May indicates that the process of disinflation in India is happening in a phased manner. The decline in core inflation to 3.1 per cent is good news for the MPC.”

“This paves the way for rate cut by the RBI earlier than expected, if the Fed also turns dovish.”

Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares and Stock Brokers, Mumbai said, “The retail inflation rate for May 2024 was lower than expected, both in core and non-core components. Despite this, inflation remains significantly above the RBI’s target, making a rate cut in the next six months unlikely.”

Radhika Rao, Senior Economist, DBS Bank, Singapore, said, “May inflation was in line with our expectations, experiencing two-way pressure - food costs rose on sequential terms on higher perishables, while non-food categories faced disinflationary pressure providing relief to real purchasing power.”

“Heading into the second quarter, base effects are likely to push the headline further south. The monetary policy committee is likely to see through the temporary correction, with an eye on the lagged impact of heat wave and monsoon progress. The May print is unlikely to be of consequence for RBI’s policy review in August.”

Yuvika Singhal, Economist, Quanteco Research, New Delhi, said, “This CPI inflation print broadly entails the ongoing story of comfort on fuel and core remaining intact, alongside price pressures on food.” “The intense heat waves across several parts of the country meant no letup in the food price momentum in May, seen in case of perishables such vegetables and milk, and non-perishables such as pulses and sugar.”

Swati Arora, Economist, HDFC Bank, Mumbai, said, “Inflation surprised on the downside. Moderation in inflation was led by a moderation in core inflation and a decline in fuel inflation. Food inflation continued to remain elevated in line with seasonal trends.”