Retail inflation fell marginally to 7.04 per cent in May, mainly on account of softening food prices, though it remained above the RBI's upper tolerance level for the fifth consecutive month. Consumer price index-based inflation has been above the 7 per cent mark for the second consecutive month.

Retail inflation was 7.79 per cent in April and 6.3 per cent a year ago. Inflation in the food basket was 7.97 per cent in May, marginally lower than 8.31 per cent in the previous month, according to the National Statistical Office (NSO).The food basket has a weightage of 39.06 per cent in the overall consumer price index.

The inflation print in “cereals and products” segment eased to 5.33 per cent in May against 5.96 per cent in the preceding month, while that for “oil and fats” softened to 13.26 per cent from 17.28 per cent.

The rate of price rise for fruits slowed to 2.33 per cent from 4.99 per cent. However, vegetable prices accelerated 18.26 per cent against 15.41 per cent in April. Among others, the prices of eggs and “pulses and products” showed deceleration, with negative inflation prints of (-)4.64 per cent and (-)0.42 per cent, respectively.

In the “fuel and light” category, inflation during the month softened a to 9.54 per cent from 10.80 per cent in April.

The Centre announced a series of changes to the tax structure levied on essential commodities and trimmed fuel tax to cushion consumers from rising prices and fight high inflation.

Heat wave impact

Economists said the dip in prices was likely to be temporary as the heat wave in June has pushed up the prices of vegetables, while the government has cut the estimates of wheat production because of dry spells.

“Core inflation in May 2022 also declined to 6.07 per cent from the previous month’s high of 6.96 per cent. Core inflation remains in excess of 5 per cent for the 25th consecutive month. Even food inflation moderated somewhat to 7.84 per cent but continues to be high single digit,” said Sunil Kumar Sinha, senior director and principal economist, India Ratings and Research .

“Interestingly rural inflation, which was higher than urban inflation in April 2022, is lower in May 2022 than urban inflation,” Sinha said.

Aditi Nayar, chief economist, Icra, said “the double whammy of the rise in the crude oil price and the rupee depreciation pose upside risks to the June 2022 CPI inflation print, even as the lower than expected momentum in the services inflation in May 2022 provides some relief.”

“Unless the June 2022 CPI inflation accelerates considerably from the May 2022 print, the average inflation for Q1 FY2023 could undershoot the MPC's forecast of 7.5% for this quarter, assuaging fears of a sharp tightening in the August 2022 review. We maintain our view that the MPC will increase the policy rate by 35 bps and 25 bps, respectively, in the next two policy reviews, followed by a pause,” she added.