India’s headline retail inflation rate may have fallen below 3 per cent for the first time in just over six years in May 2025, with food prices again expected to drive down the overall trajectory even though vegetables became somewhat more expensive last month compared to April 2025. Inflation based on the Consumer Price Index (CPI), data for which will be released by the statistics ministry at 1600 IST on Thursday, was already at a multi-year low of 3.16 per cent in April 2025.
In May 2025, while some vegetables became dearer – potato and tomato prices rose 3 per cent and 10 per cent, respectively, from the previous month according to data from the Department of Consumer Affairs – prices of cereals and pulses cooled. The net effect, according to economists, was a decline in prices of essentials. Bank of Baroda’s Essential Commodities Index, for instance, declined 0.6 per cent year-on-year last month – the first time the index has fallen since January 2019.
“We expect CPI in May 2025 to come in at 2.7 per cent,” Dipanwita Mazumdar, an economist at Bank of Baroda, said. The last time CPI inflation came in below 3 per cent was way back in April 2019, when it stood at 2.99 per cent. Other economists see CPI inflation broadly around 3 per cent.
Steady core inflation
While the headline inflation rate is seen falling for the seventh month in a row in May 2025, core inflation – which measures the year-on-year price change for non-food-non-fuel items in the CPI basket – is seen edging up to around 4.2 per cent.
Core inflation, seen as an indicator of underlying demand pressures, has gradually risen since the middle of 2024, when it stood at 3.1 per cent. According to Nomura economists Aurodeep Nandi and Sonal Varma, the recent uptick in core CPI inflation should be looked through.
“The muted core inflationary pressures likely reflect lower global commodity prices, India’s increased reliance on Chinese imports, weak domestic growth, and muted second-round effects through lower household inflation expectations and wage growth,” Nandi and Varma said in a report on Tuesday.
“We expect core inflation to remain largely range-bound for the rest of the year around 4 per cent. Food inflation is likely to trend lower, owing to a strong winter crop harvest, lower pulse prices due to higher supply, lower agricultural input costs, and potentially favourable monsoons.”
Benign inflation outlook
While the outlook for inflation is benign – the Reserve Bank of India (RBI) last week cut its forecast for the current fiscal by 30 basis points (bps) to 3.7 per cent – the pace with which prices of certain food items are falling is decreasing. According to Union Bank of India, vegetable prices possibly rose in May 2025 on a month-on-month basis after consistently falling for six months. “On-the-ground prices of most food segments, though, continue to slide but the pace of correction is losing ground,” the bank’s economists, led by Kanika Pasricha, said in a note.
“Some crawling back of prices is visible for tomato where the retail price has risen by 9.9 per cent in May 2025 on MoM (month-on-month) basis. For potato as well, prices have risen by 3 per cent… Thus, the TOP (tomato-onion-potato) trajectory needs to be closely monitored for any reversal, amid early arrival of monsoon and likely impact on supply chains,” Mazumdar of Bank of Baroda noted.
The soft inflation data in recent months, as well as the anticipation of similar numbers in the remainder of the year, has allowed the RBI’s Monetary Policy Committee (MPC) to aggressively cut interest rates in 2025 by 100 bps to support economic growth. According to the central bank, CPI inflation may average just 2.9 per cent in April-June 2025 before rising steadily to end the final quarter of the current fiscal at 4.4 per cent.
Despite expectations of sub-4 per cent inflation in the coming months, the MPC decided to tighten its policy stance to ‘neutral’ last week from ‘accommodative’ even as it cut the policy repo rate by 50 bps to 5.50 per cent, arguing that “monetary policy is left with very limited space to support growth”
By Indian Express
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