Led by declining food prices, retail inflation based on Consumer Price Index (CPI) dipped to a 75-month low at 2.82 per cent in May as against 3.16 per cent in April, National Statistics Office (NSO) reported on Thursday. However, this may not prompt the Monetary Policy to go for another policy rate cut in its August meeting.

“The significant decline in headline inflation and food inflation during the month of May, 2025, is mainly attributed to decline in inflation of pulses & products, vegetables, fruits, cereals & products, households goods & services, sugar & confectionary, and egg and the favourable base effect,” NSO said in a statement. It said inflation rate based on All India Consumer Food Price Index (CFPI) for May was 0.99 cent as against 1.78 per cent of April. A sharp decline of 79 basis point is observed in food inflation is the lowest after October, 2021.

The inflation data was on expected lines.

“The headline inflation came in broadly in line with our expectations. High frequency data show that the vegetable and fruit prices have started surging, offsetting the downward trend visible in cereals and pulses,” said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.

Veggie prices up

In a note, HDFC Bank said going forward, while vegetable prices (like tomatoes) have seen some uptick in recent days on account of heavy rainfall in certain parts of the country (in late May and early June), it expects headline inflation to remain in the range of 2.7-3.1 per cent in June.  Further, the June print could also draw support from the reduction in import duty on edible oils. The Government has reduced import duty on crude edible oils 10 per cent from 20 per cent.

Rajni Sinha, Chief Economist with CareEdge, said international commodity prices have softened amid growing pessimism around global growth, following an escalation in tariff wars. The imposition of fresh US tariffs has raised concerns over global supply glut, especially due to surplus production from China. In May, average Brent crude prices declined 23 per cent, while the Bloomberg Industrial Metals Subindex was down by 12 per cent year-on-year.

“The depreciation in the US dollar index has also helped ease concerns about imported inflation pressures. However, renewed geopolitical tensions in the West Asia have led to a recent rebound in Brent crude prices, which have risen 9.2 per cent since the end of May. This underscores the need to closely track geopolitical developments,” she said.

Still, downward trend in the headline number is expected to continue for some months.

Sujan Hajra, Chief Economist with Anand Rathi Group said the downward trend will continue through October, with the possibility of a mild uptick thereafter. Nevertheless, he said, average inflation for FY26 is likely to undershoot the RBI’s downwardly revised estimate of 3.7 per cent. Despite this disinflation, the front-loaded rate cuts and liquidity-boosting CRR reductions already announced suggest the RBI will remain on hold until at least September 2025. “If inflation remains subdued and growth begins to cool, further rate cuts could be on the cards,” he said.

Published on June 12, 2025