Retail Inflation Slips to Record Low in May

On the back of a fresh decline in food inflation,retail inflation slipped to a record low of 2.18% in the month of May. The core inflation also has been slipping to record low for past few months. Core inflation too, dropped to a record low of 4.3% in May from 4.5% in April. RBI, in its second bi-monthly monetary policy statement, has given the medium-term target for consumer price index (CPI) inflation of 4% within a band of plus or minus 2%, while supporting growth.
 
Economists have been expecting a rate cut and revision in the inflation rates by the Reserve Bank of India, while inflation touches new levels. As per the market observers, the RBI has been facing errors in inflation forecasts.
 
The vegetables and pulses have seen the sharpest fall in prices. The vegetable prices deflation can be cyclical and may change its course in near future while the pulses deflation is more of structural in nature. Categories in food inflation like meat, eggs, fish and spices also slipped. The downward movement of inflation is not in accordance with income and consumption levels.
 
According to the RBI, the current state of economy highlights the need to revive private investment, restore banking sector health and remove infrastructural bottlenecks. MPC (Monetary Policy Committee) believes that these factors should be in place and premature action at this stage risks disruptive policy reversals later and the loss of credibility.