India's retail inflation stayed below the central bank's 4% target for the fourth straight month in May on easing food prices, reinforcing the case for last week's surprise steep interest rate cut.
Annual retail inflation slowed to 2.82% in May, the lowest in more than six years, from 3.16% in April.
The May inflation print also marks the longest stretch of inflation remaining below the central bank's 4% target in six years and was below economists' estimate of 3% in a Reuters poll.
"Today’s print further confirms the moderating inflation trend witnessed over the last few months on the back of healthy agriculture supply. We expect the next inflation print to also be close to or below 3%," Sakshi Gupta, an economist at HDFC Bank said.
The Reserve Bank of India (RBI) in a surprise move last week slashed its key policy rate by a larger-than-expected 50 basis points, to boost economic growth amid growing global uncertainties.
The central bank also trimmed its projection for retail inflation for 2025-26 to 3.7% from 4% earlier, citing a strong harvest and the early arrival of monsoon rains.
Inflation in food items - which accounts for nearly half of the consumption basket- eased to 0.99% in May from 1.78% in the previous month. Vegetable prices fell 13.7% year-on-year, compared to an 11% fall in April.
The food inflation in May was the lowest since October, 2021, an official statement said.
Prices of cereals rose 4.77% on-year against a 5.35% increase in April, while those of pulses declined 8.22% from a year ago compared to a 5.23% fall last month.
Core inflation, which excludes volatile items such as food and energy and is a better gauge of domestic demand, was at 4.17%-4.20% in May from 4%-4.1% in the previous month, according to two economists.
India's official statistics agency does not publish core inflation data.
The central bank at its policy review changed its monetary policy stance to "neutral" from "accommodative" and said that the scope for further rate cuts is limited.
A Reuters poll of economists forecast that no more rate cuts are likely this year.
Some economists see scope for further reduction if inflation is lower than expected.
"We expect CPI inflation to undershoot RBI's fiscal year 2026 projection of 3.7% by 20 odd bps. As such, prospect of another 25 bps rate cut stay alive," said Garima Kapoor, an economist at Elara Securities.
