India's inflation eases in May

India's retail inflation dropped to 7.04% in May after hitting an eight-year high in April.

That compared to the consumer price-based inflation (CPI) rate of 7.79% in April, the fastest pace in eight years, reports NDTV.

The previous high was recorded at 8.33 % in May 2014. April's print was higher than 6.95 % in March and 4.23 % a year ago.

While the latest print for May of 7.04 % is below April's figure, it has stayed well above the Reserve Bank of India's (RBI's) upper tolerance limit for the fifth consecutive month. 

Food inflation, which accounts for nearly half the CPI basket, was 7.97 %, marginally lower than 8.31 % in April.
While May retail inflation slid, prices of several food products were high during the month under review.

Indeed, cereals, meat and fish, vegetables prices witnessed significant rise in May compared to April.

The central bank last week projected price pressures to remain elevated and over its target band of 2-6 % for the rest of this calendar year, so, it would be too early to call a peak in inflation.

Indeed, the RBI, which factors in the CPI in its monetary policy, had earlier this month raised the inflation forecast for the current financial year to 6.7 % from its previous estimate of 5.7 %.

The government has mandated the central bank to keep retail inflation at 4 %, with a tolerance level of plus or minus 2 % of that rate, which is between 2 and 6 %.

With the inflation outlook elevated, the RBI was forced to hike its key rate for the first time in four years, lifting it by 40 basis points (bps) in an off-cycle meeting in May and a follow-up 50 basis points increase last week, taking the repo rate to 4.90 %.

The repo rate is the rate at which RBI lends money to commercial banks.