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India’s retail inflation, measured by the Consumer Price Index (CPI), eased to 2.82 percent in May, the lowest level since February 2019, driven by declining food prices due to the increased rabi season harvest of grains, fruits, and vegetables. The May CPI figure is 34 basis points lower than the 3.16 percent recorded in April 2025 and significantly below the 4.31 percent reported in May 2024. This decline offers relief to policymakers, including the Reserve Bank of India (RBI), aiding them in formulating growth-oriented economic policies.
The Ministry of Statistics & Programme Implementation stated in a report, "Year-on-year inflation based on the All-India Consumer Price Index (CPI) for May 2025 over May 2024 stood at 2.82 percent (provisional). The sharp decline in headline and food inflation during May 2025 can be attributed primarily to reduced inflation in pulses and products, vegetables, fruits, cereals and products, household goods and services, sugar and confectionery, and eggs, along with a favourable base effect."
| India’s retail inflation (Consumer Price Index or CPI) (%) | |||||
| Month | 2020 | 2021 | 2022 | 2023 | 2024 |
| January | 7.50 | 4.06 | 6.01 | 6.52 | 5.10 |
| February | 6.58 | 5.03 | 6.07 | 6.44 | 5.09 |
| March | 5.84 | 5.52 | 6.95 | 5.66 | 3.34 |
| April | 7.22 | 4.23 | 7.79 | 4.70 | 3.16 |
| May | 6.27 | 6.30 | 7.04 | 4.31 | 2.82 |
| June | 6.23 | 6.24 | 7.01 | 4.81 |
|
| July | 6.73 | 5.59 | 6.71 | 7.44 |
|
| August | 6.69 | 5.30 | 7.00 | 6.83 |
|
| September | 7.27 | 4.35 | 7.41 | 5.02 |
|
| October | 7.61 | 4.48 | 6.77 | 4.87 |
|
| November | 6.93 | 4.91 | 5.88 | 5.55 |
|
| December | 4.59 | 5.59 | 5.72 | 5.69 |
|
Source: Ministry of Statistics and Programme Implementation (MoSPI)
“CPI inflation at 2.82 percent for May was marginally higher than our forecast of 2.7 percent. However, this low figure makes the RBI’s forecast of 2.9 percent for the quarter achievable, as inflation is expected to remain range-bound in June. The primary driver for the further decline in inflation from April was the subdued rise in several items in the food basket, which increased by just 1 percent,” said Madan Sabnavis, Chief Economist at Bank of Baroda.
Easing food prices
According to the Ministry of Statistics and Programme Implementation (MOSPI), the year-on-year inflation rate based on the All-India Consumer Food Price Index (CFPI) for May 2025 stood at 0.99 percent (provisional), compared to May 2024. The corresponding inflation rates for rural and urban areas were 0.95 percent and 0.96 percent, respectively. A sharp decline of 79 basis points was observed in food inflation in May 2025 compared to April 2025, marking the lowest level since October 2021.
Vegetables and pulses were the primary contributors to the decline, with inflation rates of (-)13.7 percent and (-)8.2 percent, respectively. Higher production of pulses during both the kharif and rabi seasons helped temper prices. For vegetables, the decline was driven by a favourable base effect and increased supplies.
However, in June, the early onset of rains adversely affected tomato and onion crops, leading to higher prices. This is expected to moderate the downward trend in inflation next month. Within the food basket, vegetable oils and fruits recorded strong double-digit inflation. The rise in vegetable oil prices was driven by global market trends and currency fluctuations, while disruptions in fruit production contributed to higher prices. The Indian government’s decision to reduce the import duty on vegetable oils from 20 percent to 10 percent is expected to ease edible oil prices in the near future.
Rajani Sinha, Chief Economist at Care Ratings Ltd, commented, “Looking ahead, food inflation is likely to remain contained, supported by robust agricultural activity and a favourable base. Positive developments include healthy reservoir levels, the arrival of the fresh rabi harvest, and promising agricultural production prospects. The India Meteorological Department’s (IMD) forecast of an above-normal monsoon further reinforces this outlook."
However, the spatial and temporal distribution of the monsoon will be crucial, particularly given the approximately 34 percent cumulative rainfall deficit observed so far. Despite the early onset, monsoon activity has slowed, but recovery remains possible as the season progresses. Weather-related risks will require close monitoring. Meanwhile, core inflation inched up to 4.2 percent in May but remains within a manageable range.
Core inflation up
Core inflation rose to 4.2 percent in May 2025, the highest level since October 2023, reflecting steady demand conditions in the economy. Services inflation remained stable at 3.9 percent in May 2025. Notably, the decline in retail inflation continued to be faster in rural areas than in urban areas. Rural inflation, at 2.6 percent in May 2025—a 69-month low—was 48 basis points lower than urban inflation.
This trend is expected to further amplify the recovery in rural demand, which is showing signs of improvement, supported by sustained positive real rural wage growth. The declining inflation is likely to provide a substantial boost to real household wages in FY2025-26. Studies indicate that a 1 percent increase in real wages leads to a 106 basis point increase in consumption demand, which, in turn, contributes approximately 60 basis points to gross domestic product (GDP) growth.
Paras Jasrai, Associate Director at India Ratings and Research, expects the disinflationary trend in various food items to persist in June 2025. “This is likely to keep retail inflation at around 2.5 percent in June 2025,” he added.
External headwinds
On the external front, international commodity prices have softened amid growing pessimism regarding global growth, driven by an escalation in tariff wars. The imposition of new U.S. tariffs has heightened concerns about a global supply glut, particularly due to surplus production from China. In May, average Brent crude prices fell approximately 23 percent year-on-year (YoY), while industrial metal prices declined by an average of 12 percent YoY.
The depreciation of the U.S. Dollar Index has also alleviated concerns about imported inflation pressures. However, renewed geopolitical tensions in the Middle East have triggered a rebound in Brent crude prices, which have risen by 9.2 percent since the end of May. This highlights the importance of closely monitoring geopolitical developments.
Miscellaneous
Within the miscellaneous group, inflation for personal care remained high at 13.5 percent, pushing the group's overall inflation to 5.1 percent. This category continues to record the highest inflation within the overall basket, with gold being a key contributing factor. In the services sector, health and education both registered inflation rates above 4 percent, primarily due to price revisions driven by rising costs. As these are one-time increases, their impact is expected to persist throughout the year.
Other categories, such as clothing and footwear (2.7 percent), fuel and light (2.8 percent), and housing (3.2 percent), experienced moderate inflation. At the state level, nine states recorded inflation above 3 percent, with Kerala leading at 6.5 percent, followed by Punjab at 5.2 percent. This indicates that inflation is not uniformly low across all states, as price levels vary. “As inflation remains within the range projected by the RBI, this inflation figure is unlikely to influence future monetary policy discussions,” said Sabnavis.
DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com
