May CPI inflation at 21-months high of 5.76%; August RBI rate cut looks unlikely

Retail inflation spiked for the second consecutive month in May, mainly triggered by high food and fuel prices and diminishing the chances of a rate cut from the Reserve Bank of India (RBI) in the foreseeable future.  The RBI will meet in August to review its bi-monthly monetary policy. The Consumer Price inflation (CPI) edged higher to 5.76 percent, higher than the 5.52 percent estimated by the economists in a Reuter’s poll and against 5.47 percent (revised) in the last month. As per the data, food inflation increased to 7.55 percent last month from 6.40 percent in the previous month. The big shock came in the form of Vegetable inflation that rose to 10.77 percent in May from 4.98 percent in April, the highest level in fourteen months. The RBI, which retained its key rates last week citing uncertainty on inflation and the monsoon situation, is likely to turn even more cautious after the May numbers.