Rising India food costs likely snapped inflation downturn in May – Reuters poll

By Milounee Purohit and Vivek Mishra

BENGALURU – India consumer inflation likely snapped a four-month downward trend in May due to rapidly rising food costs, according to economists polled by Reuters, suggesting the Reserve Bank of India is still several months away from cutting interest rates.

The Reuters poll of 50 economists conducted June 5-10 predicted consumer price inflation (CPI) is expected to have picked up to 4.89% last month from April’s 4.83%. Forecasts for the data, scheduled to be released on June 12 at 1200 GMT, ranged from 4.30% to 5.20%.

“We expect a further pickup in food inflation, led by higher prices of perishables such as fruits and vegetables amidst intense heatwaves in the country. Pulses also remain fairly elevated, lending an upward bias to the overall inflation print,” Aditi Gupta, an economist at Bank of Baroda, wrote in a note.

Food prices, constituting almost half of the CPI basket, have outpaced the rate of inflation since June 2023, as erratic rainfall and severe heat waves have reduced the supply of vegetables and other perishables.

The RBI kept its key interest rate unchanged at 6.50% last week, raised its economic growth outlook for the current year but kept its inflation view unchanged, though it warned of persistent price pressures on food.

Inflation was not expected to fall below the central bank’s 4.0% medium-term target anytime soon, averaging 4.5% this fiscal year and next, a separate Reuters survey showed.

The poll also estimated core inflation, which strips out volatile food and energy prices, was likely to be 3.20% in May, according to the median forecast of 21 economists. The Indian government does not release core inflation figures.

“The RBI has very little to worry about, especially on the core inflation front. We continue to maintain that benign core inflation is a clear indication of weak aggregate domestic demand,” wrote Kunal Kundu, India economist at Societe Generale.

“We expect the RBI to announce its first rate cut move during Q4 2024, potentially in October. Nevertheless, we do not rule out the possibility of the decision being pushed further back into 2025.”

Wholesale Price Index (WPI)-based inflation is expected to have surged to a 15-month high of 2.5% in May from 1.26% in April, the poll showed.

(Reporting by Milounee Purohit; Polling by Susobhan Sarkar, Devayani Sathyan and Anant Chandak; Editing by Ross Finley and Emelia Sithole-Matarise)


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