Due to fall in food prices, inflation has been declining in the month of May. Inflation based on the retail or Consumer Price Index (CPI) dropped to 2.18 percent in May from 5.76 percent in the same month last year.

According to the official data released on Monday, inflation was 2.99 percent in April. In the Consumer Food Price Index (CFPI) deflation was observed in May and it was negative at 1.05%, while in the same period of 2016, it was 7.45%.

The main reason for the decline is the fall in prices of pulses, cereals and spoilage items. In May, prices of vegetables declined by 13.44 per cent compared to the same period last year, pulses declined sharply by 19.44 per cent. In the month under review, prices of food items and beverages fell 0.22 percent compared to the same period last year.

In the non-food category, the fuel and power sector has the highest inflation rate of 5.46 percent. Growth of rural CPI rose to 2.30 percent in May, while in urban areas retail inflation was 2.13 percent. This is the biggest drop in inflation rate since the year 2012.

In this regard, last week, the Reserve Bank of India (RBI) did not make any major changes in its second bi-monthly monetary policy review of FY 2017-18 and maintained it at 6.25 per cent.

Now, after the new inflation data, the pressure on the RBI to reduce interest rates can be increased. If the Reserve Bank lowers the interest rate, than the banks will get more cash from the RBI and due to this, the customers can also get cheap loans.

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