Milk inflation is still stubbornly high at 10.9% in May

India’s consumer inflation could moderate further from April’s 18-month low of 4.7%, with food price rise likely to have cooled further in May even as prices of some items like milk, rice and pulses moved up on a month-on-month basis, economists reckoned.

The National Statistical Office will release the Consumer Price Index (CPI) for May next Monday. Rice and Wheat prices increased 10% and 8% in May, compared with a year ago, as per a Crisil Market Intelligence report estimating costs of food plates (Thalis) which found expenses on both vegetarian and non-vegetarian Thalis increased sequentially for the first time in seven months.

“The cost of veg and non-veg thalis declined 9% and 4% on-year, respectively, in May due to steep decline in prices of vegetables and cooking oil, which account for ~25% of the total cost of a veg thali, but increase in prices of cereals, pulses, chicken, and eggs capped the reduction,” the report said.

The Bank of Baroda Essential Commodity Index, which covers 23% of the CPI and 58% of the Consumer Food Price Index, slowed to 1.4% in May from 2.8% in April.

“We expect CPI to further edge down to 4.5% in May from 4.7% in April. Even the moderation in commodity, especially oil and gold prices, along with the 7% favourable base [the retail inflation rate in May 2022] supports our view,” the bank’s economist Dipanwita Mazumdar said in a note.

However, on a sequential basis, the index inched up to 0.4% in May compared to a 0.2% decline in the month before.

“Milk is still stubbornly high at 10.9% amidst reports of difficulty in procuring feed and also lumpy skin disease in cattle. Even sugar prices are inching up, with output declines reported in States such as Maharashtra and Karnataka. Even pulses could pose another round of spiral as Tur, Urad and Moong are noticing an upsurge,” she cautioned.

The bank expects India’s retail inflation to stay below 5% till September, and the central bank to pause interest rates through 2023-24 with a probable rate cut at the beginning of next year.