Food continues to exert pressure on retail inflation in April, May won't be any different

Retail inflation continued to face pressures from costlier food items in April even as core inflation continued to ease and in fact touch its lowest level in the current CPI series.
 
According to official data released on Monday, consumer price index based inflation eased to an 11-month low of 4.83% in April, almost at the same level as 4.85% in March. Consumer food price inflation continued to trend above the headline inflation print at 8.7% in April versus 8.52% in March.
 
Retail inflation in the food and beverages basket also rose to 7.87% last month from 7.68% in March. In April, while vegetables became slightly cheaper with CPI inflation at 27.8% compared to 28.34% in March, fruits, cereals, meat and fish became more expensive.  
 
Retail inflation in fruits was at 5.22% in April as against 3.07% in March, in cereals at 8.63% in April versus 8.37% in March. Similarly CPI inflation in April in meat and fish was at 8.17% in April versus 6.36% in March. Significantly, inflation in spices eased to single digits in April 2024 after a gap of 22 months to 7.75% in April.
 
However, with a heat wave across many parts of the country, analysts expect food prices to remain high in the coming months. “ICRA fears that the food and beverages inflation will retrace above the 8.0% mark in May 2024, partly on account of the adverse base (+3.3% in May 2023 vs. +4.2% in Apr 2023), as well as the above-normal temperatures and heatwave conditions during the summer season, which would push up the headline CPI inflation to a five-month high of 5.1-5.2% in the ongoing month,” said Aditi Nayar, Chief Economist, Head Research and Outreach, ICRA.
 
Considerable uncertainty prevails in the food price outlook. Despite healthy progress in Rabi production, uneven seasonality in vegetable prices together with increasing incidence of climate shocks warrant careful monitoring, said Madhavi Arora, Lead Economist, Emkay Global Financial Services.
 
DK Srivastava, Chief Policy Advisor, EY India said that although food inflation is marginally higher at 8.7%, the downward pressure emanates from petroleum related commodity groups namely, fuel and light and transport and communication services.
 
Core inflation has also trended downwards at 3.2%, which is the lowest in the 2012 base CPI series, he noted, adding that if this trend continues, CPI inflation in the first quarter of  FY25 may turn out to be marginally lower than RBI’s projection of 4.9%.
 
Madan Sabnavis, Chief Economist, Bank of Baroda however, noted that core inflation, which has been under control so far, can spring an upward surprise as companies have raised prices of their products. This holds in the consumer goods segment as they have held back price increases for over a year.