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Macroscope – CPI Inflation For The Month May 2021

Written by - Tejesh Kumar

June 15, 2021 3 minutes

What is the latest reading?

Inflation recorded its highest figure in 2021 at 6.3% after Q2CY22 with tepid numbers post an upwards-facing scale in the Q1CY21. It recorded 4.23% in April, and 5.52% (4- month high) in Mar’21. Inflation figures crossed the threshold territory after an aggressive pattern in shaky economic climate over the past two months. Inflation seems to have finally succumbed to intensification of the viral virus.


CPI exceeded RBI’s target range of 4 (+/-2) % for first time this calendar year, after staying below 6% mark for five consecutive months. RBI is to maintain said target range till March 2026. Any further loosening can undermine the central bank’s ability to set effective monetary policy. Reducing inflation & expanding IIP expanding can misguide investors about health of economy due to base effect at play.

Element Inflations


Investor Takeaway

A key reason for spike in inflation figures is due to higher food prices due to seasonal factors and transmission of higher international fuel prices to retail level. Another key metric to watch for is base effect, as it can misguide real inflation figures in H1CY2021 due to extraordinary inflation seen in comparison figures.

Ending a trend of printing soft figures, food inflation jumped sharply from 1.96% in month prior to 5.01%. The realization of normal monsoon will be instrumental in keeping food prices in check as supply-side disruption due to localized lockdowns already wear heavy risk.

Cost pressure of increase in inputs such as oil and pulses further escalated tensions in this segment. Declining crude oil inventories in U.S., tighter supplies from OPEC, and rising govt. taxes are primary drivers of increasing oil prices.

Apart from raw materials, there is also an increase in labour prices due to labour shortage. While the demand force in the economy remains weak currently, it’s the supply-side factors which can put upward pressure on inflation going forward.

Core inflation also saw broad-based increase, marking a multi-year high at 6.6%. It is a result of gushing commodity prices, higher import duties, rising input prices and feverish demand. Same is confirmed by visible uptrend in goods rather than services (housing, education) which continue to be benign.

In last bi-monthly monetary policy meeting, the central bank kept its key interest rates unchanged while maintaining its accommodative stance. Continuing to focus on growth via polices and packages, RBI is to use an arsenal of unique liquidity and similar supportive strategies to maintain current pace of expedited growth.

Broad-based domestic and global economic recovery should improve aggregate demand, posing an upside risk to inflation. Favorable base effect, appreciating rupee and any risk of new covid-strain led slowdown, will be a tailwind for CPI inflation.

RBI’s inflation projection at 5.1% for FY22 looks shaky in the near-term as current high print can skew figure to north of 5.5%+ per estimates of majority economists.

Click here If you want to read “consumer price index numbers on base 2012=100 for rural, urban and combined for the month of May 2021″

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