Costlier food items push inflation to 21-month high

New Delhi:  Retail inflation has risen to nearly two-year high of 5.76 per cent in May mainly due to rising prices of food items, including vegetables, and may hold back the RBI from reducing rates in the near term.
The Consumer Price Index (CPI) based retail inflation, which measures the rate of price change annually, in April was at 5.47 per cent.
In May 2015, retail inflation stood at 5.01 per cent. In August 2014, consumer inflation was at 7.8 per cent.
Among the items in the consumer basket, vegetables witnessed the sharpest price rise at 10.77 per cent in May compared with 4.82 per cent in April, showed the government data. Protein rich items too turned dearer with inflation printing to 9.13 per cent in eggs, meat and fish 8.67 per cent, milk and products 3.53 per cent and fruits 2.64 per cent.
The sharp rise in prices of most of eatables led the overall food inflation rising up to 7.55 per cent in May, compared with 6.32 per cent in the previous month.
Of the others in the inflation basket, rates of price rise in pulses and products were slower at 31.57 per cent as well for fuel and light at 2.94 per cent.
“The developing trend of inflation indicates that the RBI is unlikely to initiate further rate cuts in coming months. We retain our projection that the RBI would limit its rate cuts to an additional 25 basis points or 0.25 per cent, towards the fag-end of 2016,” CARE Ratings said.
CPI inflation is expected in the range of 5.5 to 6 per cent in June-July, with food prices likely to remain firm during those months. Moreover, the rise in service tax rate and retail prices of petrol and diesel would add some upward pressure to CPI inflation, ICRA said.
“Based on our expectation of some softening of food inflation from August 2016 onward, we continue to believe that it is too early to rule out further monetary easing in 2016,” ICRA Senior Economist Aditi Nayar said.
“So long as structural issues such as productivity in agriculture and inadequacy in agriculture supply chain are not adequately addressed, food inflation will remain a perennial problem for the Indian economy,” India Ratings’ Principal Economist Sunil Kumar Sinha said.(PTI)