Rising food costs to push up India’s inflation

India’s consumer inflation is expected to rise in May due to higher food prices, indicating that the Reserve Bank of India (RBI) may keep interest rates unchanged for the next few months, according to a Reuters poll of economists on Monday.

The poll, conducted among 50 economists between June 5th and 10th, predicts consumer price inflation (CPI) would have reached 4.89 per cent in May, up from 4.83 per cent in April.

Forecasts for the official data, due for release on June 12th at 12:00 GMT, ranged from 4.30 per cent to 5.20 per cent.

Food prices, which comprise nearly half of the CPI basket, have consistently outpaced overall inflation since June 2023.

Erratic rainfall patterns and scorching heatwaves have disrupted the supply of vegetables and other perishable items, contributing to the price hikes.

Last week, the RBI opted to hold its key interest rate steady at 6.50 per cent. While the central bank revised its economic growth forecast for the current year upwards, its inflation target remained unchanged.

A separate Reuters survey expects inflation to remain above the RBI’s medium-term target of 4.0 per cent for the foreseeable future, averaging 4.5 per cent for both the current and next fiscal year.

The poll also estimates core inflation, excluding volatile food and energy prices, to have reached 3.20 per cent in May, based on the median forecast by 21 economists. The Indian government has not officially released core inflation data.

The RBI has minimal cause for concern, particularly regarding core inflation, said Kunal Kundu, India economist at Societe Generale.

The poll further suggests that Wholesale Price Index (WPI)-based inflation likely surged to a 15-month high of 2.5 per cent in May, compared to 1.26 per cent in April.

The rise in food prices and its consequent impact on inflation are likely to delay any potential interest rate cuts by the RBI in the near future.