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India's annual retail inflation cooled to a more than two-year low of 4.25% in May as cost pressures on food eased, government data showed on Monday.

A Reuters poll of 45 economists had predicted the consumer price index would rise 4.42% in May from a year earlier.

COMMENTARY:

MADAN SABNAVIS, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI

"Rural and urban inflation (were) almost the same which is quite unusual. States had a differential picture. Inflation in Bihar, Jharkhand, Kerala, Tamil Nadu, Telangana, Uttar Pradesh and Uttarakhand were above average, while Delhi and Chhattisgarh brought it down.

"Given the uncertainty in the monsoon, the RBI will be watchful of inflation and policy stance.

"We believe that the earliest time for rate action, provided inflation is in line with the RBI's estimate, would be February."

ADITI NAYAR, ECONOMIST, ICRA LIMITED, MUMBAI

"The CPI inflation print for May eased to a softer than expected 20-month low of 4.3%, as against our expectation of 4.6% for the month, with the positive surprise chiefly driven by the food and beverages segment.

"Nevertheless, concerns loom on the horizon regarding the potential impact of a sub-par monsoon on food inflation in the second half of this fiscal.

"A pivot to rate cuts is quite distant. ICRA expects an extended pause through FY2024, and the stance to remain unchanged over the next couple of policy meetings."

YUVIKA SINGHAL, ECONOMIST, QUANTECO RESEARCH, NEW DELHI

"The May print will prove to be a point of 'local minimum' in the current inflation cycle, with subsequent inflation readings moving somewhat higher to remain in the range of 4.5-5.5% over FY24.

"With the onset of El Nino globally, we watch closely its intensity in the near term for any possible adverse impact on India's Southwest monsoon.

"We foresee a decisive down-move in inflation trajectory to 4.0-4.5% in FY25. As such we expect the RBI to maintain a prolonged pause on rates through the ongoing fiscal year, with a rate cutting cycle possibly commencing in the first quarter of FY25."

SREEJITH BALASUBRAMANIAN, ECONOMIST, IDFC AMC, MUMBAI

"India's May CPI was a tad below our expectations... the composition of this mild reading is encouraging.

"Looking forward, the magnitude of pickup in prices of vegetables and pulses in the near term (and) any effect from the occurrence of an El Niño would be key for food inflation this year, while global and domestic growth dynamics will be crucial for core inflation."

PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI

"Annual inflation is now near the RBI's 4% mid-point target and will likely remain there for the next few months, given an elevated base from last year due to the Russia-Ukraine war.

"However, the RBI is looking to align broader market expectations to 4% CPI and hence is unlikely to react to the fall in CPI towards its target.

"Besides, there are upside risks from El Nino, generous MSP and strengthening in domestic demand."

RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCIAL HOLDINGS, MUMBAI

"Both inflation and IIP (Index of Industrial Production) growth have surprised positively.

"In retrospect, it vindicates the MPC's (Monetary Policy Committee's) decision to hold rates as well as the monetary policy stance.

"Going ahead, El Nino, rupee depreciation and services growth momentum pose the upside risks to inflation trajectory. Higher growth of consumer non-durables is encouraging and shows improved rural demand situation."

DEVENDRA KUMAR PANT, CHIEF ECONOMIST, INDIA RATINGS & RESEARCH, GURGAON

"May retail inflation was in line with India Ratings expectation of 4.2%. However, it is still higher than the RBI's target of 4.0%.

"Inflation is expected to remain in the 4.4-5.4% range in the rest of this fiscal.

"India Ratings expects RBI to maintain a pause on interest rate in FY24."

SUVODEEP RAKSHIT, SENIOR ECONOMIST, KOTAK INSTITUTIONAL EQUITIES, MUMBAI

"May CPI inflation at 4.25% was lower than expectations and benefited from a favourable base effect as well as further fall in food inflation."

"Food inflation benefited from a sequential fall in the prices of fruits and oils even as the prices of eggs, meat, milk, vegetables, and pulses continued to increase, partly reflecting seasonal impact too."

"Core inflation was broadly unchanged at 5.15% though it is likely to inch up marginally over next few prints."

SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM

"Inflation softened further in May as a high base effect continued to pull down the prints."

"Food inflation continued to moderate and it was encouraging to see a seasonally adjusted sequential decline in the headline inflation as well."

"Inflation is expected to print below 5% again in June although moving higher from Q2 onwards."

GARIMA KAPOOR, ECONOMIST, INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI

"High base effect and lower sequential uptick in food and miscellaneous indices pulled headline retail inflation to a 26-month low of 4.25%."

"While El Nino continues to be a key monitorable risk, expected pass-through of lower global commodity prices to retail prices and impending cut in retail fuel prices are key tailwinds for inflation, going forward."