Base effect + Dipping energy/metal prices + Easing supply chains + rabi crop arrivals

India’s consumer price inflation (CPI) slowed for the fourth consecutive month in May, stamping 4.3%, compared with 4.7% in the preceding month.

Four factors have influenced the downward trajectory over the past few months. First, a strong base effect that will fade out for headline inflation.

Second, a fall in global oil and commodity prices. The global energy index fell an average 31.1% on-year in the last four months, while the metals index is down 17% on average.

Third, easing supply chain pressures leading to better availability of inputs and therefore reduced pressure on prices. As input cost pressures abate, though retail prices are higher than a year ago, month-on-month the increase is lesser.

Fourth, easier food inflation as the rabi crop enters the market — sequentially, food inflation fell 0.2% on a seasonally adjusted on-month basis, compared to 0.1% rise in the preceding month.

While there is cheer on overall inflation, the internals warrant some attention. For instance, food inflation has been easing for three months now with the latest reading at 2.9%. Encouragingly, there is also easing of sequential momentum. Much of this is being led by fruits and vegetables, edible oils and meat and fish where there is either deflation or low inflation. Of concern though are the still high inflation rates in cereals (12.7%), milk (8.9%), spices (17.9) and the recent uptick in pulses (to 6.6%). In the months to come, rainfall conditions will play a key role in shaping food inflation.