Inflation numbers in line with expectations, but uncertainty still remains, say experts

At 4.25 percent in May, CPI-based inflation fell for the fourth month in a row. (Representative Image)

India's headline retail inflation rate for the month of May is in line with market expectations, but uncertainty about its future course still remains, economists said.

"Broadly a good print of the inflation numbers. It is in line with market expectations. But uncertainty owing to El Nino, a rise in rice prices globally, among other factors, can largely affect the numbers going ahead," said Sakshi Gupta, Principal Economist, HDFC Bank.

"Retail inflation remained within the tolerance range of the RBI for the third consecutive month. Nevertheless, continued vigil on the evolving inflation outlook is warranted, especially as the monsoon outlook and the impact of El Nino remain uncertain," said Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.

The consumer price index (CPI) dropped to a 25-month low in May, according to data released by the Ministry of Statistics and Programme Implementation on June 12.

At 4.25 percent, CPI-based inflation fell for the fourth month in a row.

Despite the huge 227-basis-point fall since January, CPI inflation remains above the Reserve Bank of India's (RBI) medium-term target of 4 percent for the 44th month in a row.

While the RBI's Monetary Policy Committee (MPC) is maintaining inflation within a 2 percent to 6 percent range, experts are expecting inflation close to the range of 4.5 to 5 percent.

"Going ahead, this fiscal we expect the inflation number to be around 4.9 percent," Gupta said.

Ghosh said: "We expect, in FY24, average CPI to be 4.9 percent compared to 6.7 percent in FY23."

One basis point is one-hundredth of a percentage point.

RBI projections

For the fiscal year 2023-24 (FY24), the central bank projected CPI inflation at 5.1 percent while announcing the second monetary policy committee (MPC) stance for the fiscal year on June 8.

RBI Governor Shaktikanta Das, in his MPC speech on June 8, predicted inflation at 4.6 percent for the first quarter of FY24.

For the second quarter, the central bank estimated retail inflation to come in at 5.2 percent, while for the third quarter, it expects 5.4 percent, and for the last quarter of FY24, the apex bank expects inflation to come in at 5.2 percent.