April’s 69-month low retail inflation and 13-month low wholesale inflation should come as a relief to the public and policymakers alike. For the public, it shows that the easing of prices in the first few months of the year is continuing. For policymakers, it goes a step further in confirming that last year’s alarming levels of inflation are well and truly under control, and that the Reserve Bank of India (RBI) was right to cut interest rates twice in a row. The fall in retail inflation was driven by a contraction of nearly 11% in vegetable prices, and 5.2% in the price of pulses. However, it is important to note that although vegetable prices are lower than last year, this contraction is mainly due to a very high base — vegetable inflation was in the 27%-30% range in the February-April period of last year. Inflation at the wholesale level, too, was driven down by easing vegetable prices, which contracted 18.26% in April. This, too, was on a relatively high base of nearly 12% last April. The base effect aside, it does look like the government’s efforts to bolster buffer stocks of essential food items, conduct open market releases, and ease imports during supply shortages have helped in easing inflation. The other — less positive — factor could have been the liquidity crunch that banks were facing in the first few months of the year. Lower liquidity results in lower amounts left to lend, which squeezes money with companies and the public, and thus can lower inflation. As things stand, even though retail inflation has been decreasing for six consecutive months, its trajectory for the rest of the year will significantly be determined by the monsoon and its vagaries. Similarly, the ongoing tariff uncertainty and threats of retaliation by India will also play a part.
The latest inflation data does have some policy implications. The first and most obvious one is that it will likely encourage the RBI’s Monetary Policy Committee to cut interest rates again in June. However, an important consideration for it will also be how the latest GDP growth data — to be released this month end — will look. The other, more immediate step for public sector oil marketing companies is to finally cut fuel prices in line with crude oil inflation in the WPI coming in at a 22-month low. If not, then the government should officially abandon its dynamic pricing policy, where prices are supposedly revised daily. That fuel prices have been virtually unchanged in three years, despite oil prices falling 42% over the period, means the policy is a sham in any case.
Published – May 16, 2025 12:20 am IST