Headline inflation, as measured by the wholesale price index (WPI), trended down for the fourth straight month to 4.7% in May, as against 4.89% the previous month, as the price rise in manufacturing and fuel products slowed.
Food inflation, however, gathered pace and shot up 8.25%, compared with 6.08% in May last year, driven by an increase in vegetable prices.
Experts see food inflation, too, coming down, going forward.
“With a normal monsoon likely in 2013, we expect price pressure on food items to subside in coming months,” said Deutsche Bank chief economist Taimur Baig. “This, along with weak domestic demand, is likely to drive both CPI and WPI inflation even lower in coming months.”
Retail inflation, also known as consumer price index (CPI), fell marginally to 9.3% for May.
The Reserve Bank of India (RBI) primarily looks at WPI inflation while deciding on monetary policy. A fall in WPI inflation thus gives the central bank more space to cut repo rate.
However, economists see the sharp slide in the rupee of late pushing inflation up and complicating the chances of further monetary easing.
Rupee touched a record low of 58.98 against the US dollar this week.
Baig said despite the fall in inflation, concerns about exchange rate pass-through to the CPI and WPI could keep the central bank on the sideline on June 17.
HSBC chief economist Leif Eskesen expects a rate cut of 25 basis points next week. However, a delay cannot be ruled out due to rupee depreciation, he said.
A falling rupee pushes up the prices of imported products and further worsens India’s current account deficit, a key concern for the government and central bank alike.
Repo rate, or the rate at which the central bank lends to banks, currently stands at 7.25%. It has been cut thrice by 25 bps each this calendar year.
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