Inflation to decline further to 4.3% in May: Barclays

Inflation is expected to decline further in May, inching closer to RBI’s target of 4%, driven by base effects and sequential easing in energy costs, according to Barclays.

“We expect the moderating trend in CPI inflation to continue in May and forecast headline inflation at 4.34%, down from 4.7% in April. If realised, it would be almost a two-year low for CPI inflation,” according to Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays.

Consumer inflation had declined to 4.7% in April, falling below the 5% mark for the first time since November 2021.


However, Bajoria warns that prices may rise again starting July 2023 if the El Nino effects play out, which will impact production. Also, stickiness in core inflation may lead to prices inching higher.

“We expect stickiness in inflation in housing, clothing and footwear, and health and education,” Bajoria said, adding that demand resilience has given better pricing power to producers, which may not lead to the input costs being fully passed on to the consumer.

“Persistence in retail price levels is likely to lead headline inflation to converge to core towards the last quarter of FY24,” Bajoria added.

Services PMI data released on Monday indicated output charge inflation is growing the fastest in nearly six years.

Reserve Bank of India’s monetary policy committee, scheduled to meet from June 6-8, will announce its rate decision on June 8. Experts say that the Reserve Bank is likely to hold rates in June.

The MPC predicts inflation at 5.2% for FY24.

Energy support

The food prices in May are expected to ease further to 3.5% compared with 4.2% in the previous month, whereas fuel inflation is estimated to fall to 3.75% from 5.5% due to a sharp fall in international prices of LPG and Kerosene.

While a higher base is expected to keep prices low—inflation in May 2022 was 7.04%—sequentially, Barclays noted that food prices would likely rise in May.

“The m/m rise is partly seasonal, as warm weather is leading to higher costs for perishable food and some core items, which we expect be offset to some extent by a fall in energy costs, particularly of LPG and kerosene.”

Barclays predicts inflation to rise 0.6% sequentially, higher than 0.5% in April, and food prices increasing by 0.77% in May.

Consumer inflation data will be released by the ministry of statistics and programme implementation on June 12.