India inflation likely cooled to a 20-month low in May: Reuters poll

By Veronica Dudei Maia Khongwir and Devayani Sathyan

BENGALURU (Reuters) - Consumer price inflation in India likely cooled to a 20-month low in May as food price rises slowed further, drawing closer to the Reserve Bank of India's medium-term target of 4%, a Reuters poll of economists found.

Despite heat waves across the agriculture-dependent country, rises in food prices are expected to be kept in check by lower input costs and the government's regular intervention to curb price spikes.

Food inflation, which accounts for nearly half of the consumer price index (CPI) basket, eased to 3.84% in April and was expected to have declined further last month.

The June 2-7 Reuters poll of 45 economists predicted inflation measured by the consumer price index (CPI) rose at an annual rate of 4.42% in May, down from 4.70% in April and set to be the lowest since October 2021.

Predictions ranged from 4.10% to 5.10%, below the RBI's 6.00% upper tolerance limit for a third consecutive month.

"In May, we are expecting a noticeable decline in the food index, especially vegetables, oils, and cereals. Fuel and core will also be down," wrote Sonal Badhan, an economist at Bank of Baroda.

"Improvements in supply chains and the base effect are leading to a moderation in domestic food prices. Internationally, oil prices have also come down, which in turn benefits the imported inflation component."

The survey also showed wholesale price inflation, the change in producer prices, likely slipped to an annual -2.35% last month from -0.92% in April.

Signs of easing price pressures would provide breathing room for the RBI, which is widely anticipated to hold its key repo rate unchanged at 6.50% at the conclusion of its monetary policy meeting on Thursday.

A separate Reuters poll in May showed consumer price inflation not dropping to or below the RBI's 4% medium-term target anytime soon, suggesting the door is still open for more rate hikes.

Inflation was expected to average 5.1% and 4.8% for fiscal years 2023/24 and 2024/25, respectively.

(Reporting by Veronica Khongwir and Devayani Sathyan; Polling by Anant Chandak and Madhumita Gokhale; Editing by Ross Finley and Christina Fincher)