The inflation data for May 2025 is out now, and it is the fourth time in a row that the RBI achieved its target of keeping the Retail Inflation below its 4% target. However, what’s more crucial to know is that May’s inflation dropped to a 75-month low of 2.82%, even lower than April 2025’s inflation rate in India of 3.2%. The credit goes to food inflation in India without a doubt, as it dropped below 1% for the first time in almost four years. That said, will this trend of easing inflation sustain or are there some twists? Let’s find out.
What’s Easing Retail Inflation in India?
The foremost factor helping in easing India’s retail inflation in India has to be food prices, amongst other factors. As the Indian food inflation has been staying below 3% for the third time in a row, the CPI inflation also remained under the RBI’s target of 4%.
However, while the headline inflation has been under the control of the RBI, some high-frequency data shows food prices are again turning. Vegetables and fruits are becoming costlier, which is offsetting the dip in the prices of cereals and pulses. Though the overall food inflation remains in check, there are certain products whose prices are increasing again. Compared to April 2025, Milk prices have surged significantly by 3.15% against the rise of 2.72% recorded in April. Oil prices surged the most among the food items. The prices rose to a 38-month high of 17.9% in May.
Fruit inflation eased to 12.7% from April’s 13.9%, but it is still in double digits for the 5th month in a row.
Another segment that is clothing and footwear also witnessed prices as inflation for this segment rose to 2.18% in May from 2.07% in April. Furthermore, healthcare, personal care, and transportation inflation rose as well in May against April’s numbers.
Government’s Moves and the Impacts
As the oil prices surged drastically in May, the government cut the basic customs duty on crude edible oil to half. This move is expected to bring down the edible oil prices as India imports almost 60% of the crude edible oil it consumes.
The prices surged because in September 2024, the government increased the import duties on edible oils, which pushed the inflation to double digits. It remained consistently expensive since then, with inflation of the segment roaming around 13% for the past 6 months.
Inflation Outlook
RBI in its June MPC meeting slashed the inflation forecast to 3.7% for FY26 from its previous estimates of 4%. The experts anticipate a favourable monsoon to keep the food prices low and a subdued global economy with lower commodity prices to keep the inflation in check for FY26.
RBI also announced massive rate cuts in the MPC meeting, even though there is disinflation; however, further rate cuts will only be possible if inflation remains within check.
Experts from ICRA and India Ratings and Research anticipate the inflation rate in India to be around 2.5% in June, further down from its current level, driven by reducing food prices.
Source: MoneyControl
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