Veggies, pulses drag inflation to record low of 2.18 pc in May

In April, the retail inflation recorded was 2.99%.

However, the year-on-year CPI inflation eased sharply to a series-low 3.0 percent in April 2017, led by food inflation. This clearly shows that the risk is on the downside. "There would not be any effect of a rate cut at this point due to the excess liquidity of Rs4 lakh lying with the RBI", he said. Power generation rose by 5.4 per cent in April, down from 14.4 per cent expansion in April past year.

The pace of expansion, however, was slower than a revised 3.8 percent annual rise in March and compared with a 3.0 percent growth forecast by economists in a Reuters poll.

The RBI last week kept its benchmark interest rate unchanged while softening its hawkish stance on inflation.

Gaurav Dua, research head at domestic brokerage Sharekhan, said, "RBI had indicated that inflation in first half would be between 2.5 - 3.5 per cent and this is lower than that also". While commodity prices have come down and there has been a surge in the rupee, it has made imports cheaper and resisted the price pressures.

According to the CSO data, manufacturing sector, which constitutes 77.63 per cent to the IIP, grew at 2.6 per cent in April compared to 5.5 per cent in same month previous year. That would be the lowest since June past year.

Further falls in prices could compound their woes and fuel discontent that has triggered protests in the big agrarian states of Maharashtra and Madhya Pradesh, where police shot dead five protesting farmers last week.

Even as the outlook for inflation looks benign, another rate cut is not yet a done deal.

"Inflation will have to go below 2% for the central bank to cut rates", said A. Prasanna, chief economist of ICICI Securities Primary Dealership Ltd. This is all the more relevant, given the agitations for farm loan waivers in different parts of the country as signs of rural distress, a flipside of the crash in food inflation over the last several months.

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