India’s consumer price index-based retail inflation declined to an 18-month low of 4.7 per cent in April from 5.66 per cent in the previous month helped by moderation in food and fuel price, as per the government data released on Friday.
The headline retail inflation has remained within the Reserve Bank of India’s tolerance band of 2-6 per cent for the second consecutive month. However, the retail inflation remains above the RBI’s medium-term target of 4 per cent for the 43rd month in a row.
Inflation data looks good in April partly because of a favourable base. The Consumer Price Index (CPI) based inflation stood at 7.79 per cent in April 2022.
There was a sharp moderation in food price rise. Retail food inflation eased to 3.84 per cent in April from 4.79 per cent in the previous month. Consumer food price index (CFPI) based inflation stood at 8.31 per cent in April 2022.
Decline in food inflation was sharper in urban areas. Food inflation in urban areas eased to 3.69 per cent in April while in rural areas it declined to 3.83 per cent.
Overall retail inflation in rural India declined to 4.68 per cent in April 2023 from 8.38 per cent in the same month last year. Retail inflation in urban areas eased to 4.85 per cent in April 2023 from 7.09 per cent in the same month last year.
The CPI is based on price data collected from selected 1114 urban markets and 1181 villages covering all States/UTs.
Core inflation, or inflation excluding the volatile food and fuel items, declined to 5.2 per cent in April from 5.8 per cent in March.
With the moderation in inflationary pressure, including a decline in core inflation, the RBI is likely to keep policy rates unchanged in its review scheduled in the first week of June.
“Given the encouraging signs on inflation and the fact that the US Fed is also likely to pause rate hikes, the RBI will be more inclined to stay put on rates,” said Mohit Ralhan, Chief Executive Officer of TIW Capital.
The RBI’s Monetary Policy Committee (MPC) in its last meeting held in the first week of April decided to keep the policy repo rate unchanged.
Vivek Rathi, Director of Research, Knight Frank India, pointed out that “despite a relative moderation across the categories, the inflation levels are still elevated impacting the discretionary spending of the households.”
“The wholesale prices have declined sharply in the last few years, however, the producers/manufacturers have not yet passed on this price reduction to the consumers, to maintain their profit margins, in the current high-cost environment,” Rathi added.