Beneath Headline Inflation

Spike in prices of mass-consumption items and global uncertainty warrant caution on monetary front

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Retail inflation numbers of the past few months have shown a sustained trend of deceleration, and the year-on-year rise in the consumer price index (CPI) plunged to a 69-month low of 3.16% in April. For the third month in succession, the headline print came in below 4%, the Reserve Bank of India's (RBI) target under the flexible inflation-targeting framework. CPI inflation for 2025-26 is now projected at 4%, with quarterly estimates of 3.6% in Q1, 3.9% in Q2, and 3.8% in Q3. Only in Q4 (4.4%), the print is seen to exceed the target again. Analysts cite these assumptions, and the growth imperative, to predict a third straight rate cut in the next bi-monthly monetary policy review in June. There is a view that the cumulative reduction in the policy rate in the whole of the current fiscal year, including the 25-basis point cut undertaken in April, could be 75 bps. That would take the extent of the current monetary easing cycle which began in February to a full one percentage point. That would be a substantive accommodation.