NEW DELHI: A month after the RBI did some heavy lifting and the Centre cut fuel excise rates, the consumer price index (CPI) based-inflation fell to 7.04% in May. In the month before, it had hit an eightyear high of 7.78%.
But compared to May last year’s figure of 6.3%, the inflation now is very much on the higher side. In fact, this is the fifth straight month when the CPI inflation is above the RBI’s upper band of 6%. The central bank has been mandated by the government to keep the inflation between 2% and 6%.
Interestingly, rural inflation, which was higher than urban inflation in April, slipped below urban inflation in May. Rural and urban inflations stood at 7.01% and 7.08% respectively in May as against 8.38% and 7.09% in April. However, major components of the CPI basket, like food and beverages, pan and tobacco, clothing and footwear and fuel and light witnessed a sequential rise.
In a bid to moderate inflation, the RBI on June 8 hiked the rate at which it lends to commercial banks by 50 basis points to 4.9%. An SBI research report sought to join issue with critics of the RBI’s intervention, saying.
“We believe RBI is much ahead of the curve in controlling inflation.” Dr Sunil Kumar Sinha, Senior Director and Principal Economist, India Ratings and Research, said the RBI’s monetary tightening impacts the real economy with a lag of 6-9 months.
He feels that the impact of fuel price cut on inflation will be felt much faster than RBI’s rate cut, but will be visible only in June’s numbers and thereafter. Upasana Bhardwaj of Kotak Bank expects the April-June inflation to average at 7.3%, lower than the RBI’s revised projection of 7.5%.
