Retail inflation for May is likely to be below 3 per cent. Official data are to be out on Thursday and if the print is below 3 per cent, it will be so for the first time since April 2019.

“We continue to expect an average inflation of 3.7 per cent for the year, with downside risks to our forecast now emerging – contingent on how the distribution of monsoon and the consequent impact on food inflation pans out. In the near term, inflation could print below 3 per cent for May 2025, given the continued moderation in food inflation,” HDFC Bank said in a note.

Headline retail inflation rate based on Consumer Price Index (CPI) was 3.16 per cent in April – at a 69-month low.

TOP prices

In the month under consideration, vegetable prices saw a sharp reduction on yearly basis, and a mixed trend on sequential basis. According to CRISIL’s Monthly Indicator of Food Plate Cost, tomato prices fell by 29 per cent, onion by 15 per cent and potato was 16 per cent down in May. However, on a sequential basis, potato and tomato prices rose 3 per cent and 10 per cent respectively, while onion prices dipped 10 per cent.

All eyes are now on monsoon, which arrived early, but has slowed down since May 29. The Indian Metrological Department (IMD) has forecast a revival from Thursday.  

According to Aastha Gudwani, India Chief Economist at Barclays, spatial and timely distribution of rainfall this season will be key to ensure that inflation for major kharif crops (rice, pulses, oilseeds) remain contained. Above-normal monsoon last year (at 108 per cent of LPA) supported record agricultural output of food grains in Agri Year 24-25.

“Food CPI inflation has been on a moderating trajectory since November 2024, with headline inflation at 3.2 per cent (though a large part of the moderation) is due to deflation in the vegetable CPI, disinflation in cereals and pulses has helped too,” she said.

Rate cut in sight?

An important question is whether there should be another policy interest rate (better known as repo rate, or the rate at which RBI lends to commercial banks) cut. The signal from RBI Governor Sanjay Malhotra is that there could be a pause for some time.

The MPC has decided to change the stance from accommodative to neutral. From here onwards, the MPC will be carefully assessing the incoming data and the evolving outlook to chart out the future course of monetary policy in order to strike the right growth-inflation balance.

It may be noted that retail inflation was below 3 per cent for 6 consecutive months between November 2018 and April 2019. During that period, policy interest rate was lowered by 50 basis points to 6 per cent from 6.5 per cent. At present, the policy interest rate is at 5.5 per cent.

Published on June 11, 2025