Retail inflation falls 2-year low during May in big relief to consumers

India’s retail inflation slowed to a more than two-year low of 4.25% in May as food prices eased during the month, official figures released on Monday showed.

Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities said, “Food inflation cooled due to the fall in prices of fruits and cooking oils although prices of milk, vegetables, and pulses continued to increase.”

The decline in inflation comes as a big relief to consumers and will also give the RBI more room for lowering key interest rates to spur economic growth.

Retail inflation, which reflects the amount that consumers actually pay for buying goods, in India peaked at 7.8 per cent in April 2022. In some advanced countries such as the UK inflation had shot past the 10 per cent mark at the time.

This had led to the RBI raising key interest rates and following a tight money policy to control inflation. However, the flip side is that investment and consumption tend to decline with higher interest rates which dampens growth.