India's May retail inflation picks up to 6.30pc y/y, highest in six months

NEW DELHI: India's retail inflation accelerated in May, at its fastest pace in six months as fuel and food prices rose at a higher pace, putting pressure on the central bank to tame prices amid a faltering economic recovery.

The Reserve Bank of India earlier this month warned that high energy prices could stoke inflation while cutting the growth forecast to 9.5% from 10.5% for the current fiscal year beginning April.

Annual retail inflation rose 6.30% year-on-year, up from 4.29% in April. Analysts had forecast retail inflation at 5.30%, according to a Reuters poll.

Economists fear a rise in prices after the second wave of coronavirus hit the economy while killing tens of thousands of people since April.

"We expect the CPI (consumer price inflation) prints to remain above 5% until September driving the annual average CPI to 5.2% for current fiscal year," said Garima Kapoor, economist institutional securities, Elara Capital, Mumbai.

She said the central bank could tolerate high inflation close to the upper end of its 2-6% target band as the recovery from the second wave was likely to be more gradual and subdued than the first wave.

Food prices, which account for nearly half of the Ministry of Statistics' inflation basket, rose 5.01% year-on-year from 3.15% in the previous month.

A global recovery has led to a rally in commodity prices including crude prices. Brent crude futures have risen to over $72 a barrel from a low closing price of $19.33 in March 2020.

In India fuel prices have risen by over 30% from May of last year.

High energy and commodity prices are also raising input costs for companies in India pushing wholesale price inflation to at least a 15 year high of 12.94% year-on-year in May, according to Refinitiv data.

May core inflation, excluding food and fuel costs, was estimated in the range of 6.54% to 6.56% by three economists, after the data release.

India does not release core inflation numbers.