High food prices allow only a slight moderation in inflation: CRISIL Ratings report

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The Consumer price index (CPI) inflation or retail inflation though has slightly moderated in May but the food inflation is a worrying aspect of the economy, CRISIL Ratings said in a note on Wednesday. On June 12, the government data stated that India’s headline retail inflation eased to the lowest in a year at 4.75% in May 2024 as compared to 4.83% in April.

The headline rate for last month is the lowest after May 2023 when it came in at 4.31% and has now been under the 5%-mark for three consecutive months starting March 2024.

“Consumer price index (CPI) inflation moderated slightly to 4.75% in May from 4.8% in April. Non-food categories drove down the headline number, but what’s worrying is the relentless inching up of key food categories — cereals and pulses — and the rigidity in vegetables at elevated levels. Food inflation has stayed above 8.5% for four months now. In May, seasonal pressures kept it at 8.7%, unchanged from April. Non-food inflation continued to offer some respite, printing at a record low of 2.3%. Much of this was due to the core sliding to 3%, also a record,” Crisil Ratings said.   

It added that the monsoon season might influence food inflation in the coming weeks. 

“The southwest monsoon has arrived on time; now, its progress will influence how food inflation moves over the next few months. From June, the high base would offer support, but a sharper easing in inflation, particularly food inflation, will depend on the advancement of the monsoon,” it added.

“For this fiscal, we expect inflation to average 4.5%. Assuming a normal monsoon, we expect food inflation to soften. Non-food inflation could see a statistical uptick but is overall expected to remain soft on the back of benign commodity prices. Geopolitical developments need to be watched as escalations in ongoing tensions could push up commodity prices and constrain supply chains,” it further said. 

Some points on food inflation

Food inflation stood unchanged from the previous month, at 8.7%. Foodgrain inflation inched up to 10.4% in May from 10.2% in the previous month since inflation in cereals and pulses rose. After four straight months of easing, pulses inflation unexpectedly rose 30 basis points (bps) to 17.1%, mainly due to an uptick in inflation in Arhar dal (32.1% vs 31.4%). Cereals inflation was up 10 bps to 8.7%.

> Vegetables inflation was also rigid at 27.3% compared with 27.8%. TOP (tomatoes, onions, potatoes) and non-TOP vegetables inflation continued to diverge for the third straight month. TOP inflation rose to 46.5% from 45% while non-TOP vegetables inflation eased to 18,8%. Inflation hardened on-month in potatoes (55.4% vs 53.6%) and onions (38.1% vs 36.7%).

> The pace of deflation in edible oils slowed for the fourth consecutive month. Inflation in edible oils stood at – 6.7% in May compared with -9.4% in April. This was led by slowing deflation in mustard oil (-8.6% vs -12.2%) and refined oil (-10.8% vs -14.4%)

> Spices inflation eased sharply for the ninth straight month, to 4.3% from 7.8%. Jeera’s inflation was in single digits for the first time since March 2022 (9.1% vs 29.3% in April). Inflation in dry chilies was negative at -3% compared with -0.5% in April.

> Inflation in milk eased below 3% for the first time since 2021, standing at 2.6% in May, down 40 bps from April.

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