India's Retail Inflation Hits Two-Year Low as RBI's Policies Prove Effective

India's retail inflation continued to ease in May, reaching a two-year low of 4.25%. It marks a significant decline from 4.7% in April and 5.7% in the previous month. The rural and urban inflation indices stood at 4.17% and 4.27%, respectively.

 

The decline in retail inflation is driven by decreases in the sub-index for oils, fats, and fruits. The Reserve Bank of India (RBI) has played a role in curbing inflation through consistent monetary policy tightening since mid-2022.    

 

The RBI's efforts have successfully brought down inflation numbers, which had previously exceeded the RBI's 6% target for three consecutive quarters. The RBI's decision to maintain the repo rate may be influenced by the current decline in inflation, which is at an 18-month low, and the potential for further decreases.

 

Additionally, the RBI has lowered its inflation projection for 2023-24 to 5.1%, down from the previous estimate of 5.2% in April.

 

While the recent decline in inflation is positive, RBI Governor Shaktikanta Das emphasized the importance of achieving the target inflation rate of 4.0% in the future, as headline inflation remains above the target.

 

Turning to wholesale inflation, it turned negative in April for the first time since July 2020, after easing from 1.34% in March. The wholesale inflation had steadily decreased since October when it stood at 8.39%.

 

Notably, the wholesale price index (WPI)-based inflation had doubled for 18 consecutive months until September.

 

The decline in April's wholesale inflation can be attributed to lower prices of food articles, cereals, vegetables, fruits, eggs, meat and fish, minerals, crude petroleum and natural gas, and steel, among others. The wholesale inflation figure for May is yet to be released.

 

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