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According to a poll by Reuters, India's retail inflation likely fell only little in May

Image: Reuters Berita 24 English -  According to a Reuters poll, India's retail inflation likely declined slightly in May, but remained ...

Image: Reuters

Berita 24 English -  According to a Reuters poll, India's retail inflation likely declined slightly in May, but remained significantly above the Reserve Bank of India's upper tolerance limit for the fifth straight month, as lower gasoline prices offset rising food prices.

The decline is expected to be transitory, and economists believe the RBI will continue to raise interest rates.

To protect consumers from rising prices and combat excessive inflation, the government announced late last month a series of adjustments to the tax structure imposed on essential goods and a reduction in gasoline tax.

Although the entire impact on consumer prices is not expected until June, experts report that these steps have temporarily halted the growing trend in prices.

However, a dramatic increase in the prices of wheat, tomatoes, potatoes, and other vegetables - essential staples in every Indian household - will maintain excessive inflation. In northern India, crop production have decreased because of dry spells and heatwaves.

Inflation as measured by the consumer price index (CPI) likely fell to 7.10 percent in May from 7.79 percent in April, according to a poll of 45 economists conducted by Reuters from June 6-9.

Forecasts for the data, scheduled on June 14 at 1200 GMT, ranged from 6.70 percent to 8.30 percent.

Dhiraj Nim, an economist at ANZ, estimated that the government's fuel tax cuts reduced costs by approximately 10 percent compared to earlier this year.

"However, food inflation remains on a steeply upward trend, particularly during the summer months beginning in May," he noted.

The rising cost of food has become a serious concern for homes already severely affected by the pandemic.

In April, food inflation, which accounts for roughly half of the CPI basket, increased 8.38 percent annually, the largest increase in nearly two years. This year's decline of more than 4 percent of the rupee against the dollar has also increased the price of imports.

This indicates that interest rates will continue to rise.

After an unexpected 40-basis-point increase at an unscheduled meeting in May, the RBI raised its repo rate by an additional 50 basis points to 4.90 percent on Wednesday and predicted that inflation will likely remain above its upper tolerance band of 6 percent till December of this year.

"Many of the present stresses are largely supply-driven. In the medium term, the RBI can do quite little to directly counteract this "Miguel Chanco, the top developing Asia economist for Pantheon Macroeconomics, stated as much.

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