Retail inflation rises to 5.76%, a 21-month high

The Dollar Business Bureau

Retail inflation accelerated to a 21-month high of 5.76 percent in May due to rising food prices, including vegetables, making it unlikely for RBI to cut rates in the coming months.

Based on the Consumer Price Index (CPI), retail inflation, which takes into account the rate of yearly price change, was at 5.47 per cent in April. Retail inflation was at 5.01 percent in May 2015, while in in August 2014, consumer inflation stood at 7.8 percent.

According to government data, among the items measured for consumer inflation vegetables, recorded the steepest price surge at 10.77 percent in May against the 4.82 percent in April.

Items rich in protein also witnessed a rise in prices: fruits 2.64 per cent, eggs 9.13 percent, meat and fish 8.67 percent, milk and milk products 3.53 percent.

The sharp increase in the prices of many eatables has driven total food inflation to 7.55 percent in May, as compared to 6.32 percent in the preceding month.

Among other items, pulses and products have witnessed lower rates of price rise at 31.57 percent, while fuel and light were at 2.94 percent.

"The growing trend of inflation shows that the RBI is not likely to go for further reduction in rate in the coming months. We keep our estimates that the central bank would restrict its rate cuts to an extra 25 basis points, till the end of 2016,” said CARE Ratings.

CPI inflation is estimated to be in the range of 5.5-6 percent in June-July, with prices of food stabilizing during these months. But an increase in the rate of service tax, petrol and diesel retail prices would put extra pressure on CPI inflation, said the credit rating agency ICRA.