Retail Inflation Eases To 2-Year Low Of 4.25% In May

India's retail inflation dipped to a 25-month low in May, mainly driven by softening prices of food and fuel items. At 4.25 per cent, the retail inflation is the lowest since April 2021 when it was 4.23 per cent.

The retail inflation - down from last month's 4.7 per cent - is below the Reserve Bank of India's six per cent comfort zone for the third straight month.

The government has tasked the central bank to ensure retail inflation remains at 4 per cent with a margin of 2 per cent on either side.

Food inflation - which accounts for nearly half of the overall consumer price basket - was at 2.91 per cent in May, lower than 3.84 per cent in April. The food basket accounts for nearly half of the  Consumer Price Index or CPI.

Inflation in fuel and light eased to 4.64 per cent, from 5.52 per cent in April.

The fuel and food prices are falling as the effect of the Ukraine war on global commodity prices is waning. Brent crude oil prices hit a record high of $130 per barrel in March last year as a result of the Russia-Ukraine war, now the prices have come down to around $70 per barrel. 

Last week, the central bank kept policy rates unchanged at 6.5 per cent and projected retail inflation for the current fiscal to average at 5.1 per cent, with June quarter inflation pegged at 4.6 per cent.

The law mandates that the central bank should target inflation at 4 per cent, with a flexibility of 2 percentage points on either side. The country's retail inflation was last below 4 per cent in September 2019.