Inflation hit record low in May, IIP growth suffers post-demonetization blues

Retail inflation slumped to record low of 2.18% in May driven by sharp drop in kitchen staples like vegetables and pulses, strengthening government’s case for lowering of interest rate by RBI.

For the first time since January 2012, food prices saw deflation in May (-1.05%) and the prospect of good monsoon rains is likely to keep food inflation in check. Inflation apart, industrial output too slipped to 3.1% in April from 6.5% a year ago, possibly because of lagged impact of demonetization, government data showed today.

The worst performing sectors in April were manufacturing, capital goods and consumer durables. The Consumer Price Index (CPI) based inflation strengthened the finance ministry’s stand that Reserve Bank of India’s forecast on price rise had large errors and there was a case for cutting interest rate to help private investments to pick and boost economic growth.

Retail inflation was the lowest since the government started publishing a wider CPI data in 2012. Consumer prices rose 2.99% on year in April and 3.81% in March. Clothing, housing, fuel and light also saw lower inflation rate in May while prices of vegetables declined by 13.44% and that of pulses and products by 19.45%.

Earlier this month, RBI left key interest …read more