India’s Retail Inflation Hits Six-Year Low of 2.82% Amid Food Price Relief
India’s retail inflation fell to its lowest level in six years in May 2025, influenced by declining food costs, supportive policy measures, and a beneficial annual base effect.
Retail Inflation Falls Sharply in May 2025
India witnessed a sharp drop in retail inflation in May 2025, with the Consumer Price Index (CPI) falling to 2.82%—its lowest level in over six years. This development, revealed in official government data, marks a significant 34 basis point decline from April 2025. The reading is the lowest recorded since February 2019 and beats market expectations, as a Reuters survey had forecast CPI to come in at 3%.
This steady decline is largely attributed to a notable drop in food inflation, minimal increases in key consumer goods, and the advantage of a low base effect from the previous year.
Food Inflation Sees Major Cooldown
The most significant contributor to the fall in headline inflation was the dramatic easing in food prices. Food inflation in May dropped to just 0.99%, down from 1.78% in April—a fall of 79 basis points.
Delving into the specifics, food price inflation registered at 0.95% in rural regions, whereas urban areas recorded a slightly higher rate of 0.96%. These figures represent the lowest food inflation levels since October 2021.
Prices of several staples eased notably. Vegetable prices declined by 13.7% year-on-year, extending the 11% fall seen in April. Pulses experienced a notable price drop of 8.22%, deepening from the 5.23% contraction recorded in the previous month. Even cereals witnessed reduced inflation at 4.77%, down from 5.35% in April.
Perishable food items saw only mild sequential increases, but annual inflation rates remained subdued—supporting the broader trend of disinflation in essential goods.
Rural and Urban Inflation Trends
The decline in inflation was widespread across both rural and urban regions. In rural India, overall CPI inflation eased to 2.59% in May from 2.92% in April. The Consumer Food Price Index (CFPI) for rural areas also softened to 0.95%, a significant fall from 1.85%.
Urban regions reflected a comparable trend, with headline CPI easing to 3.07% from 3.36% in April, while food inflation in cities saw a steep drop from 1.64% to 0.96%. This broad-based moderation suggests that consumers across different demographics are benefiting from the easing price environment.
Other Categories Show Mixed Movements
In the fuel and light segment, inflation inched down slightly to 2.78% in May, compared to 2.92% in April. Meanwhile, urban housing inflation rose modestly to 3.16% from the previous month’s 3.06%, reflecting some upward pressure in real estate-related costs.
However, prices for household items, sugar, confectionery, and eggs all showed slower rates of increase or even year-on-year declines, contributing further to the cooling of headline inflation.
RBI Adjusts Inflation Forecast for FY26
Following the marked slowdown in inflation, the Reserve Bank of India revised its consumer inflation estimate for FY 2025–26, bringing the expected average down to 3.70%, compared to the earlier projection of 4%.
Here’s the updated quarterly breakdown:
• Q1 FY26: 2.9%
• Q2 FY26: 3.4%
• Q3 FY26: 3.5%
• Q4 FY26: 4.4%
The RBI emphasized that while inflation is now comfortably below its 4% medium-term target, uncertainties related to global markets and supply-side conditions—such as weather patterns and crop performance—still need careful tracking.
Policy Implications and Monetary Outlook
The move comes after the Reserve Bank of India recently lowered the benchmark interest rate by 50 basis points to 5.5%, marking its third targeted rate cut in the 2025 calendar year. Simultaneously, the RBI shifted its policy stance from “accommodative” to “neutral,” indicating a more measured strategy aimed at balancing economic expansion with inflation control.
Despite recent aggressive rate cuts, the central bank has hinted at a pause in further easing for now. Policymakers have noted that any additional rate action will be closely tied to upcoming data and the evolving economic landscape.
Monsoon Progress and Agricultural Risks
While the early onset of the southwest monsoon offered initial optimism for a strong agricultural season, its progress stalled in early June 2025. Experts caution that the spatial and temporal distribution of rainfall will be crucial in determining crop outcomes.
Concentrated heavy rains over short durations could risk damaging standing crops, potentially reversing the recent gains in food inflation. Therefore, monsoon trends will be a key factor to monitor in the coming weeks.
Final Thoughts
India has seen a profound shift in its inflation dynamics, with consumer price increases cooling to just 2.82% in May 2025—the lowest level recorded in the past six years. The cooling of food prices, lower costs across various essentials, and proactive monetary easing have all contributed to this disinflationary trend.
As inflation remains below the RBI’s 4% target for the fourth month in a row and well under the 6% tolerance ceiling for seven months, the central bank has taken a cautious but optimistic stance. Going forward, the progress of the monsoon and global supply dynamics will play pivotal roles in shaping future price movements and monetary decisions.
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The image added is for representation purposes only
