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India’s May Inflation Stays Above 7% on Costlier Food, Fuel

CPI stayed above the central bank’s target, adding pressure on policymakers to stay hawkish.

India’s May Inflation Stays Above 7% on Costlier Food, Fuel
India’s May Inflation Stays Above 7% on Costlier Food, Fuel

India’s consumer price gains stayed above the central bank’s target, adding pressure on policymakers to stay hawkish despite raising the key rate by 90 basis points this year.

Retail inflation rose 7.04% in May from a year earlier, the Statistics Ministry said in a statement Monday. That compares with a 7.79% increase in April, and a 7.10% gain seen in a Bloomberg survey of economists. 

High commodity prices and supply chain disruptions are straining fragile household budgets and risk hurting India’s nascent recovery. The Reserve Bank of India last week raised policy rates for a second straight month as prices stayed above its 6% ceiling since the beginning of the year. Economists further warn that second-rung impacts could cause inflation to overshoot the RBI’s 6.7% forecast.

Authorities around the world are unleashing greater policy firepower to combat unrelenting inflationary pressures. The central government’s fiscal measures including tax cuts and subsidies on fuel, may have helped cool prices. 

Inflation is seen peaking only by August given the recent food price increases, said Kanika Pasricha, an economist at Standard Chartered Plc in Mumbai, adding that the central bank may opt for a 50 basis points rate hike in August.

India’s May Inflation Stays Above 7% on Costlier Food, Fuel

Food prices, which comprise more than half of the inflation basket, accelerated 7.97% in May, while fuel and electricity prices rose 9.54%. Clothing and footwear prices rose 8.85%, while housing prices jumped 3.71%.

Wholesale price inflation, which surged to a three-decade high of 15.08% in April, is seen accelerating further to 15.30% in data due Tuesday, according to a separate Bloomberg survey. 

(Updates with economist quotes in fifth paragraph)

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