But this dip is likely to be temporary and analysts believe the RBI remains on track to continue raising interest rates.
At the end of last month, the government announced a series of changes to the structure of taxes levied on essential commodities and reduced fuel tax to protect consumers from rising prices and combat fuel consumption. inflation rises.
Although the full effect is not expected to show in consumer prices until June, economists say the measures have briefly helped stem the upward trend in prices.
But a sharp rise in the prices of wheat, tomatoes, potatoes and other vegetables – key ingredients in every Indian kitchen – will keep inflation high. Crop yields are declining due to droughts and heat waves in northern India.
The June 6-9 Reuters poll of 45 economists showed inflation as measured by the consumer price index (CPI) likely slipped to 7.10% in May from a year earlier, from 7.79 % in April.
The forecast for the data, due at 1200 GMT on June 14, was in the 6.70%-8.30% range.
Dhiraj Nim, an economist at ANZ, said the government’s reduction in fuel taxes has brought prices down by around 10% from the start of the year.
“However, food inflation continues to follow a sharply elevated path, particularly in the summer months from May onwards,” he said.
Rising food prices have become a major concern for households already hard hit by the pandemic.
Food inflation, which accounts for nearly half of the CPI basket, rose to 8.38% year-on-year in April, the highest rate in nearly two years. A more than 4% fall in the rupee against the dollar this year has also made imports more expensive.
This means that interest rates will continue to rise.
After a surprise 40 basis point hike at an unscheduled meeting in May, the RBI raised its repurchase rate another 50 basis points to 4.90% on Wednesday and said inflation was likely to remain at above its upper limit of tolerance of 6% until December this year.
“A lot of the current pressures are very much supply-side. There’s not much the RBI can do to stem this in the short term,” said Miguel Chanco, chief economist for emerging Asia at Pantheon Macroeconomics.