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                          Last updated: 07 Jun, 2021  

                          Inflation.9.Thmb.jpg May CPI inflation may increase to 5.7%

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                          SME Times News Bureau | 07 Jun, 2021
                          A widespread increase in food and core CPI components should push CPI inflation up to 5.7 per cent yoy in May, Barclays said on Monday.

                          In a research report focused on India, the investment banker said that after moderating for two quarters and moving closer to RBI's target, the CPI inflation will likely accelerate in the coming months.

                          "We expect it to rise to 5.7 per cent in May from 4.3 per cent in April. The 140bp increase in headline CPI will likely be driven by the combination of a low base effects and a broad-based sequential increase in prices across major CPI components," Barclays said.

                          The investment banker's assertions on inflation is also based on seasonal factors where in summer months food prices tend to rise sequentially, and in May prices increased across the board for food components.

                          While the release of buffer stocks could to keep price rises for cereals in check, prices of proteins and edible oils are showing sustained upward momentum. Seasonal factors play a part, pushing up prices of perishables such as vegetables and fruits, and modest gains are likely in prices for milk, eggs and meat, as of transportation and storage costs increase amid rising motor fuel prices will add to handling and freight costs, Barclays said.

                          After rising for most of 2021, fuel inflation is now expected to inch closer to double digits, and likely stay at elevated levels for the coming few months. Prices of motor fuels are also likely to rise, as retail prices rose following the end of regional election cycle and on the surge in global energy prices.

                          Although the RBI has urged the central and state governments to cut taxes, Barclays said that it sees this move constraining the government's fiscal position, and also only likely to delay inflation.

                          Also, the core inflation is expected to pick up and rise to 5.9 per cent in May, a 31-month high and up from 5.2 per cent in April. The report said that Inflation in the clothing and housing segments will remain high, and while there would be sustained momentum in education and medical costs.

                          We expect the rise in gold prices to add further momentum to core inflation. Inflation could also be exacerbated by disruptions resulting as a number of states imposed movement restrictions through May to control the Covid outbreak, which continue to prevail in June, Barclays said.

                          Rising input costs and surging wholesale prices, which moved to 10-year highs, will also likely add to the concerns of the RBI's monetary policy committee. The RBI only modestly increased its CPI projections in its latest MPC meeting.
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