Retail inflation drops to over six-year low of 2.82% in may, eased by cooling food prices

By: Team India Tracker

The sharp easing in headline inflation was largely attributed to a significant drop in food prices, favourable base effects, and a moderation in the rise of essential commodity prices.

India's retail inflation slid to a more than six-year low of 2.82 percent in May 2025, according to official data released on Thursday. This marks a 34 basis point decline from April and the lowest annual inflation rate since February 2019.

The sharp easing in headline inflation was largely attributed to a significant drop in food prices, favourable base effects, and a moderation in the rise of essential commodity prices. Food inflation cooled to 0.99 percent in May from 1.78 percent the previous month, registering a steep 79 basis point fall. Rural and urban food inflation stood nearly identical at 0.95 percent and 0.96 percent, respectively.

May marks the fourth consecutive month that retail inflation has remained below the Reserve Bank of India’s (RBI) medium-term target of 4 percent, and the seventh straight month it has stayed under the central bank’s upper tolerance limit of 6 percent. The data follows closely on the heels of the RBI’s latest monetary policy announcement, where the Monetary Policy Committee (MPC) delivered a 50 basis point cut in the benchmark repo rate, bringing it down to 5.5 percent. This was the third straight rate cut in 2025. The central bank also revised its policy stance from “accommodative” to “neutral”, signalling a calibrated approach to balancing inflation control with growth support.

Source: Ministry of Statistics and Programme Implementation

Earlier this month, after announcing a 50-basis point cut in the repo rate, Reserve Bank of India Governor Sanjay Malhotra stated during a press briefing that the central bank’s decision was driven by signs of easing inflationary pressures in the Indian economy. “Inflation has softened significantly over the last six months from above the tolerance band in October 2024 to well below the target, with signs of broad-based moderation,” RBI Governor Malhotra said. 

While overall food inflation moderated in May, several components within the food basket continued to register a quicker rise in prices compared to the previous month. Milk inflation climbed to 3.15 percent from 2.72 percent in April, while edible oil inflation surged to a 38-month high of 17.9 percent. The government’s recent decision to reduce the basic customs duty on crude edible oil by half is expected to help alleviate price pressures, especially as imports make up nearly 60 percent of India’s edible oil consumption.

Radhika Rao, Executive Director and Senior Economist at DBS Bank said, "Selected perishable food groups were up modestly on a sequential basis but moderated on annual terms, aiding the headline. Benign core-core prints point to economic slack, supporting recent moves to frontload monetary and liquidity stimulus. Monsoon developments warrant attention, after progress stalled following an early onset. For the full year, we expect inflation to average below 4 percent, aligning with our core-core measures." 

Previously, a hike in import duties on edible oils in September 2024 had pushed inflation in the category into double digits, a trend that has persisted, with price growth remaining above 13 percent for the last six months. Although fruit inflation eased slightly to 12.7 percent from 13.9 percent in April, it remained in double digits for the fifth consecutive month.

Inflation in clothing and footwear, while relatively moderate, inched up to 2.18 percent from 2.07 percent. Prices in other categories such as health, transport, and personal care also recorded a faster pace of increase in May compared to the previous month.

“ICRA expects the CPI-food and beverages inflation to ease further in June 2025, supported by a favorable base. This is expected to pull down the headline CPI inflation print to 2.5 percent in the month. Notwithstanding the early arrival of the South-west monsoon, the progression of the same has halted in early-June 2025. Going forward, the temporal and spatial distribution is crucial to ensure favourable increase in crop yields; excessive rainfall concentrated during short periods of time could destroy the standing crops and thereby remains a key monitorable.” Aditi Nayar, Chief Economist and Head, Research & Outreach, ICRA Ltd, said. 

Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Group while commenting on the reduction in inflation said, “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. However, if inflation remains subdued and growth begins to cool, further rate cuts could be on the cards. While some of the recent disinflation is driven by a high base, the combination of softening price pressures and robust growth creates a favourable backdrop for the Indian economy and equity markets.”