Rural Inflation Remains Stubbornly Above 5%, Urban Food Prices Surge Towards 9%.

Synopsis

Price pressure remained for most food items, with the exception of spices, where the inflation rate dropped to 4.3%, the lowest level in two years.

Food price inflation in India stayed at 8.7%, with urban households seeing a greater 8.83% surge. Consumer price inflation fell slightly from 4.83% in April to last 1-year-low of 4.75% in May. Food prices increased by less than 3% in May 2023, while retail inflation was recorded at 4.31%.

Food inflation for rural consumers decreased slightly 8.75% vs 8.62% in May, for the fourth consecutive month that it was above 8.5%. The CPI increased by 0.5% in May compared to April's values, and the food price index increased by 0.73%. For rural consumers, the sequential increase in food costs was 0.7%, whereas for urban consumers, it was 0.9%.

For last 3 months, there was a noticeable difference in the inflation patterns of urban and rural consumers. In May, prices increased by 5.3% for rural households. The retail inflation rate for urban consumers was 4.15% in April, marginally higher than 4.14% vs 4.11% in April.

Retail inflation is still faraway from the central bank's 4% target, even though it has already remained below 6% since September 2023. The Reserve Bank of India (RBI) has estimated 4.9% for the April to June quarter and anticipates retail inflation to 4.5% this year. With inflation marginally lower in April and May, it is possible that prices may rise by more than 5% this month.

Price pressure remained for most food items, with the exception of spices, where the inflation rate dropped to 4.3%, the lowest level in two years. Prices for vegetables increased by 27.3% in May, while those for cereals (8.7%), eggs (7.6%), fruits (6.7%), and pulses (6.6%) saw an increase in inflation. With May's 17.14% price increase, pulses have now seen above 10% inflation for a full year.

Prices for meat and fish increased by 7.3% in May, slightly down by 8.2% in April. After falling 9.4% in April, edible oil prices fell 6.7% from the previous year, marking the lowest price reduction in 14 months.

Dipti Deshpande, principal economist at Crisil, described the rising prices of staple foods like cereals and pulses as well as the inflexibility of vegetable prices as concerning. She also mentioned that this month's food inflation could soften due to the southwest monsoon's progress.

With non-food inflation at low of 2.3%, there is still some relief. She said that the core dropping to 3%, another record, was mostly to blame for this.

Author: Prayas Sarkar, MBA Finance,

Post graduate programme of financial markets,

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