As per the data, inflation in the food basket rose to 1.83 per cent in May, higher than 1.1 per cent in April.
The Reserve Bank of India (RBI) mainly factors in the CPI-based inflation numbers while setting the key policy rates. The government has mandated the RBI to maintain the retail inflation at around 4 per cent.
A poll conducted by news agency Reuters had expected that CPI inflation likely accelerated to 3.01 per cent in May on rising food prices, but it is also stated that the figure will remain well below the RBI’s target, giving it room to ease policy further.
The Reserve Bank changed its stance to “accommodative” from “neutral” last week and cut interest rates for the third time in a row, bringing the borrowing rate to a nine-year low of 5.75 per cent.
Food prices have steadily risen since March after contracting from October 2018-February 2019. Food prices constitute nearly half of India’s inflation basket.
“The uptick in retail inflation is because of higher vegetable prices,” Sameer Narang, chief economist at Bank of Baroda told Reuters.
“Pre-monsoon rains have been delayed and are below normal. It has put sowing a bit behind (schedule) because of which productivity will be low, pushing prices higher,” he added.
A weak monsoon can lead to a sharp rise in food prices. The central bank also highlighted that risk last week and raised its inflation forecasts for the first half of the current fiscal year.
Core inflation, which excludes volatile components like food and energy, has been on a downward trajectory since February, suggesting weakness in economic activity.
In the January-March (Q4 FY19) quarter, the GDP growth slowed more sharply than expected to 5.8 per cent – lagging China’s pace for the first time in nearly two years.
In another set of data released by the government, factory output growth or industrial production moved to 3.4 per cent in the month of April. Industrial production grew at a six-month high in April mainly on account of improvement in mining and power generation.
The previous high in industrial growth was recorded at 8.4 per cent in October 2018. Factory output is measured in terms of the Index of Industrial Production (IIP).
(With agency inputs)
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