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INFLATION DOWN FOR 7th MONTH IN A ROW

Inflation remained in negative territory for the seventh month in May, registering a decline of 2.36 per cent on account of subdued prices of food items, fuel and manufactured goods.
In the coming months however the price situation will depend on the progress of monsoon, experts said.
The Wholesale Price Index (WPI) based inflation was (-)2.65 per cent in April. It has been in the negative zone since November 2014. Inflation in last May was 6.18 per cent.
The lower inflation comes amid a forecast of deficient monsoon this year. In contrast to IMD's forecast of 12 per cent deficient rainfall, the onset of monsoon has been reasonably strong so far.
Citigroup said that overall the monsoon is still a risk factor but "we expect CPI (retail inflation) to undershoot RBI's Jan-16 projection by 40bps and average 5 per cent in 2015-16. This is likely to create room for further 25 bps cut in current fiscal".
The CPI inflation had inched up marginally in May to over 5 per cent from 4.87 per cent in the previous month.
As per the WPI data released by government today, vegetable inflation was (-)5.5 per cent, with potato prices falling by about 52 per cent.
Protein rich items like egg, meat and fish too were cheaper in May as compared to the previous month and so were milk, fruits, rice and cereals.
Overall food inflation was 3.8 per cent, much lower than the previous few months.
Similarly, the May inflation in manufactured items (food products, sugar, edible oils, beverages) declined by 0.64 per cent, lowest in past many months.
Inflation in fuel and power basket was at (-)10.51 per cent on annual basis, though slightly up from April.
Commenting on the data, ICRA economist Aditi Nayar said the cooling of food inflation in the WPI and Consumer Price Index over the recent months is reassuring in light of continuing uncertainties regarding the monsoon dynamics.
She said however that further rise in year-on-year inflation for pulses in May in the WPI as well as the CPI, is a cause for concern, given the uncertainty regarding the extent and timing of monsoon rainfall in key pulses growing areas, which have an unfavourable irrigation coverage.
Citigroup Research also said that notwithstanding a strong onset of monsoon, the sub-par rainfall remains a risk based on IMD forecast.
"However we've noted that the sensitivity to inflation has been on a decline and this could especially be the case if global food prices remain benign, and trends in rural wages and MSP remain moderate," it added.
The government meanwhile has asked banks to reduce their lending rates in line with the cuts affected by the Reserve Bank in 2015 in view of fall in inflation.

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