Retail inflation cools to a six-year low of 2.82% in May on moderating food prices

New Delhi: Retail inflation in India cooled to its lowest level in over six years in May, helped by a sharp moderation in food prices, according to provisional government data released Thursday.

Consumer Price Index (CPI)-based inflation eased to 2.82% year-on-year, down from 3.16% in April and 4.8% in May last year, data from the Ministry of Statistics and Programme Implementation (MoSPI) showed. This marks the fourth consecutive month of sub-4% inflation, the longest such streak in at least five years.

The data comes just days after the Reserve Bank of India’s (RBI) Monetary Policy Committee cut the repo rate by 50 basis points to 5.5%, its third straight cut and a cumulative reduction of 100 basis points since the easing cycle began in February. The move signals a possible pivot from inflation control to supporting growth.

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Food inflation came in at just 0.99% in May, down from 1.78% in April and a sharp decline from 8.69% a year ago.

A Mint poll of 15 economists had projected CPI inflation to ease to 3% in May. The actual reading reinforces the view that price pressures are softening across several key consumption categories.

"India's inflation came in close to our expectations in May, below 3%—the softest since mid-2019. Selected perishable food groups were up modestly on a sequential basis but moderated on annual terms, aiding the headline," said Radhika Rao, executive director and senior economist at DBS Bank on CPI Inflation.

Rao expects inflation to average below 4% for the full year FY26.

"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," she added.

Retail inflation last dipped below 3% for six consecutive months between November 2018 and April 2019—a period during which the RBI also cut rates by 50 basis points.

Food inflation eases, but unevenly

Food prices continued to cool in May, with with slower price increases in cereals, eggs, and fruits compared to April. Prices of meat, fish, vegetables, and pulses declined declined during the month to offering some relief to households.

However, inflation remained sticky in essential items such as milk and dairy products, edible oils, and non-alcoholic beverages, highlighting the uneven nature of the overall moderation.

Inflation in the food and beverages category rose 1.5% year-on-year in May, easing from 2.14% in April and 2.88% in March.

Prices in other core categories remained largely stable. Clothing and footwear inflation held at 2.67% in May, unchanged from April and slightly above March’s 2.62%.

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At the state level, 12 of 22 major states reported inflation below the national average of 2.8%, including Andhra Pradesh, Assam, Bihar, Delhi, Gujarat, Jharkhand, Odisha, Rajasthan, Tamil Nadu, Telangana, Uttar Pradesh, and West Bengal.

Some economists attributed May's decline to falling prices in non-core categories, food and fuel, emphasizing that core inflation has remained steady in the 4–4.5% range over the past year.

"We expect this downward trend in retail inflation to continue through October 2025, with the possibility of a mild uptick thereafter; nevertheless, average inflation for FY26 is likely to undershoot the RBI’s downwardly revised estimate of 3.7%," said Sujan Hajra, chief economist and executive director, Anand Rathi Group.

"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," Hajra added.

A breather for the RBI

The central bank's rate setting panel held its ground on the GDP growth forecast for FY26 at 6.5% in its June review, offering a measure of stability amid persistent global uncertainties.

The central bank had initially projected a 6.7% expansion but revised it downward in April, flagging risks from rising trade and policy volatility—including the potential impact of a return to steep, Trump-era tariffs that could strain Asia’s third-largest economy.

Also read | MPC's larger-than-expected rate cut hints at pause to easing cycle: Icra's Nayar

With inflation expected to average 4% over the year, ranging from 3.6% in the first quarter to 4.4% by the end, the RBI may begin to gradually shift focus from taming prices to reviving credit and supporting growth, especially in what may turn out to be a softer economic year.

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

"While the overall inflation trajectory is expected to remain benign, the recent frontloaded policy actions and the guidance of limited room for incremental easing suggests prolonged pause for now, with further actions being highly data dependant," she added.