Retail inflation hits 69-month low as food prices drop; opens door for rate cut
Retail inflation hit a 69-month trough of 3.16% in April, staying below the central bank’s 4% target for three months in a row and brightening the prospects of a third rate cut this year next month. The moderation in retail inflation in the first month of the fiscal year was driven by a decline in food prices, showed official data released Tuesday. The Consumer Price Index (CPI)-based inflation was at 3.34% in March and 4.83% in April 2024. This gives the central bank’s Monetary Policy Committee (MPC) room to cut the benchmark lending rate to help boost the economy, experts said. 
“A 25-basis points rate cut appears forthcoming in the June policy meeting, followed by easing of 25 bps each in the August and October policy reviews,” said Aditi Nayar, chief economist at ICRA. The panel had trimmed the rates by 25 basis points each in February and April, having held it for about five years before that to curb price pressure. Nayar said the MPC may even consider a 50- bps cut in the June review if the gross domestic product (GDP) growth for the March quarter does not accelerate from the 6.2% recorded in the previous three months. Official GDP figures will be released on May 30. “The RBI will opt for a 25-bp cut in view of the fragile global economic and geopolitical environment,” said Paras Jasrai, associate director at India Ratings and Research (Ind-Ra).Vegetable prices fall 11% in AprilEasing food inflation would bring some relief to households and could spur the consumption demand, Jasrai said. Food inflation declined to 1.8% in April, the lowest since October 2021. Sakshi Gupta, principal economist at HDFC Bank, said continuous broad-based drop in food prices, including vegetables, cereals and pulses, caused the headline retail inflation to moderate. OutlookMany economists expect retail inflation to stay below the 4% level in the ongoing quarter. “The expectation of an above-normal monsoon and low commodity prices bode well for the inflation trajectory through the year, with inflation expected to average at 3.7% in FY26,” Gupta said.While an HDFC Bank report expects it to remain close to 3% over the next two months, ICRA projects 3.5% for May. “The recent rise in temperatures in North India and unseasonal rainfall in parts of peninsular India may cause a spike in vegetable prices in the second half of May, boosting the CPI inflation print,” Nayar said. ICRA has projected average inflation of 3.5% in FY26. Bank of Baroda chief economist Madan Sabnavis expects inflation to remain low in May and June due to the base effect. Urban-rural gapRural inflation fell to 2.9% in April from 3.3% in March, while in urban areas, it remained flat at around 3.4%. Of the 36 states and union territories, eight recorded a higher inflation rate than the national average in April. Kerala led the pack with an inflation rate of 5.9%, followed by Karnataka (4.3%), Jammu & Kashmir (4.3%), Punjab (4.1%), and Uttarakhand (3.8%). Among the key items, the highest inflation rate was observed in the case of gold--at 30.9%. Next was refined oil at 23.8%, followed by silver (23.3%), mustard oil (19.6%), and apple (17%). Food, servicesVegetable prices declined by 11% year-on-year in April, while pulses inflation fell by 5.2%. Tomato and potato prices dropped by 33.2% and 12.7%, respectively. In contrast, onion prices rose by 2.9%. Among food items, oils and fats saw the sharpest price increase of 17.4%, followed by fruits at 13.8%. Inflation in personal care and affects was 12.9% in April compared to 13.5% in March.
“A 25-basis points rate cut appears forthcoming in the June policy meeting, followed by easing of 25 bps each in the August and October policy reviews,” said Aditi Nayar, chief economist at ICRA. The panel had trimmed the rates by 25 basis points each in February and April, having held it for about five years before that to curb price pressure. Nayar said the MPC may even consider a 50- bps cut in the June review if the gross domestic product (GDP) growth for the March quarter does not accelerate from the 6.2% recorded in the previous three months. Official GDP figures will be released on May 30. “The RBI will opt for a 25-bp cut in view of the fragile global economic and geopolitical environment,” said Paras Jasrai, associate director at India Ratings and Research (Ind-Ra).Vegetable prices fall 11% in AprilEasing food inflation would bring some relief to households and could spur the consumption demand, Jasrai said. Food inflation declined to 1.8% in April, the lowest since October 2021. Sakshi Gupta, principal economist at HDFC Bank, said continuous broad-based drop in food prices, including vegetables, cereals and pulses, caused the headline retail inflation to moderate. OutlookMany economists expect retail inflation to stay below the 4% level in the ongoing quarter. “The expectation of an above-normal monsoon and low commodity prices bode well for the inflation trajectory through the year, with inflation expected to average at 3.7% in FY26,” Gupta said.While an HDFC Bank report expects it to remain close to 3% over the next two months, ICRA projects 3.5% for May. “The recent rise in temperatures in North India and unseasonal rainfall in parts of peninsular India may cause a spike in vegetable prices in the second half of May, boosting the CPI inflation print,” Nayar said. ICRA has projected average inflation of 3.5% in FY26. Bank of Baroda chief economist Madan Sabnavis expects inflation to remain low in May and June due to the base effect. Urban-rural gapRural inflation fell to 2.9% in April from 3.3% in March, while in urban areas, it remained flat at around 3.4%. Of the 36 states and union territories, eight recorded a higher inflation rate than the national average in April. Kerala led the pack with an inflation rate of 5.9%, followed by Karnataka (4.3%), Jammu & Kashmir (4.3%), Punjab (4.1%), and Uttarakhand (3.8%). Among the key items, the highest inflation rate was observed in the case of gold--at 30.9%. Next was refined oil at 23.8%, followed by silver (23.3%), mustard oil (19.6%), and apple (17%). Food, servicesVegetable prices declined by 11% year-on-year in April, while pulses inflation fell by 5.2%. Tomato and potato prices dropped by 33.2% and 12.7%, respectively. In contrast, onion prices rose by 2.9%. Among food items, oils and fats saw the sharpest price increase of 17.4%, followed by fruits at 13.8%. Inflation in personal care and affects was 12.9% in April compared to 13.5% in March.
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