Retail inflation slumps to 2.82% in May on softer food prices, giving RBI more policy space

By: Shantanu Bhattacharji

Inflation varied sharply across states, with Kerala recording the highest rate at 6.46% and Telangana the lowest at just 0.55%, while rural inflation stood at 2.59%, slightly below the 3.07% seen in urban areas.

Consumers just got a rare break: retail inflation fell to its lowest level in over five years. In May, the Consumer Price Index (CPI) based retail inflation cooled to 2.82 per cent, down from 3.16 per cent in April, according to data released by the National Statistical Office (NSO). That’s the lowest it has been since February 2019—and well within the Reserve Bank of India’s (RBI’s) comfort zone. 

The big reason: food prices finally softened. Vegetable prices plunged 13.7 per cent year-on-year. Pulses saw their sharpest fall in over six years. Even spices and meat, which rarely see deflation, became cheaper. As a result, overall food inflation dropped to just 0.99 per cent, the lowest in nearly four years. 

More significantly, a closer look reveals why: prices of everyday staples saw steep declines. Tomatoes were down 26 per cent, potatoes fell over 20 per cent, and onions dropped more than 10 per cent compared to a year ago. Protein sources like chicken fell nearly 8 per cent, while pulses such as arhar slid almost 20 per cent. Even spices like jeera saw a 17 per cent price cut.

This comes as welcome relief for households struggling with high grocery bills and for policymakers trying to keep interest rates stable while protecting growth. With inflation well below the central bank’s 4 per cent target, the RBI’s Monetary Policy Committee (MPC) is now under less pressure to hike rates—and may even consider cutting them later this year if the trend holds. 

Adding to the easing trend, the government halved the basic customs duty on imported crude edible oils from 20 per cent to 10 per cent. The move comes at a crucial time for lower- and middle-income households, where cooking oil often eats into a significant share of monthly budgets. The reduction is expected to translate into lower retail prices in the coming months. 

At the state level, inflation varied widely. Kerala posted the highest reading at 6.46 per cent, while Telangana recorded the lowest at just 0.55 per cent. In West Bengal, CPI eased to 2.45 per cent from 3.16 per cent the previous month. Inflation in rural areas stood at 2.59 per cent, slightly below the 3.07 per cent rate seen in urban centres. 

According to data from the NSO, inflation in rural India stood at 2.59 per cent in May, compared to 3.07 per cent in urban areas—highlighting a slightly sharper easing of prices in the countryside. 

But here’s the catch: this relief might be temporary. 

For one, much of the decline owes itself to the “base effect”—last year’s high prices make this year’s numbers look better. And food inflation has a way of bouncing back. All eyes are now on the monsoon, which affects crop output and supply. Any delay or disruption could send prices rising again. Climate volatility, already seen in heatwaves and erratic rainfall, adds to that risk. 

Meanwhile, core inflation—the prices of non-food, non-fuel items—is still sticky in parts of the economy. Rent, healthcare, and education costs remain high, and global factors such as oil prices and geopolitical tensions could quickly turn the tide.

For now, though, this dip in inflation is a positive signal. It gives the RBI policy space. It helps consumers feel a little more confident. And it sends a broader message: that inflation, while not conquered, is at least back under control—if only for now. 

The RBI expects consumer price inflation to average 3.7 per cent in FY26—comfortably within its 2-6 per cent target range. But the projected quarter-by-quarter climb, from 2.9 per cent in Q1 to 4.4 per cent by Q4, could put the central bank’s policy stance under pressure later in the year, especially if food or energy price shocks materialise. 

Economists caution that converting short-term relief into lasting price stability will require structural effort. That includes investing in resilient food supply chains, managing demand-side pressures, and staying agile in the face of global disruptions. The path from easing to equilibrium is rarely smooth—but for now, India is headed in the right direction.