Headline retail inflation in India for May will likely decline further towards 4% say economists – the midpoint of the central bank’s target.

Last month, India’s consumer price inflation (CPI) edged down to 4.7% - an 18-month low – from 5.66% the month before, predominantly due to a moderation in food prices. 

The Reserve Bank of India’s (RBI) Monetary Policy Committee aims to keep inflation within a range of 2% and 6%, and is forecast to try and secure inflation near the 4% mark, Reuters reports. 

“Our analysis places May CPI inflation tracking around 4%, which suggests the Q2 average is likely to undershoot the RBI's forecast of 5.1% by as much as 60 basis points,” said Nomura economists Sonal Varma and Aurodeep Nandi.

Inflation data for this month is due to be published on 12th June. India’s retail inflation was last near the 4% mark in January 2021, reaching 4.06%. 

The rising food prices are predicted to be kept at bay by reduced agricultural input costs and supply-side intervention by the government. 

In addition, according to IDFC FIRST Bank, a “significant” base effect will boost this month’s inflation data, with the bank pegging May’s inflation at 4.2%. The bank’s forecast for 2023/24 has also been lowered to 5% from a previous 5.5% forecast, the Reuters report adds.

Whereas Barclays predicts inflation in India will fall to 4.3% in May and stay between 4% and 5% for the “foreseeable future.”

The moderation in inflation indicates the central bank may have ended its rate hiking and will likely remain on hold for longer, according to a Barclays note. 

Since May 2022, the central bank’s Monetary Policy Committee has increased the repo rate by 250 basis points to curb inflation. The majority of economists forecast the Committee will hold rates for the second time at next month’s meeting.