Retail inflation falls to 6 year low of 2.82% in May on cooling food prices

New Delhi: Retail inflation dipped to an over six-year low of 2.82 percent in May due to subdued food prices, remaining below the RBI's median target of 4 percent for the fourth consecutive month, according to government data released on Thursday.

Consumer Price Index (CPI)-based retail inflation was 3.16 percent in April and 4.8 percent in May 2024. The previous low was in February 2019 at 2.57 percent.

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On easing inflation, the Reserve Bank effected a jumbo rate cut of 50 basis points last week, taking the total to 100 bps since February.

Food inflation was 0.99 percent in May, significantly lower from 8.69 percent in the year-ago month, according to the National Statistics Office (NSO) data.

"The significant decline in headline inflation and food inflation during the month of May 2025 is mainly attributed to a decline in inflation of pulses & products, vegetables, fruits, cereals & products, households goods & services, sugar & confectionary and egg and the favourable base effect," NSO said in a statement.

The food inflation in May 2025 is the lowest since October 2021.

According to NSO data, inflation in rural areas was 2.59 percent in May, while it was 3.07 percent in urban India.

Among states and UTs, the highest inflation was recorded in Kerala at 6.46 percent, followed by Punjab (5.21 percent), Jammu and Kashmir (4.55 percent), Haryana (3.67 percent) and Uttarakhand (3.47 percent).

The lowest inflation was in Telangana at 0.55 percent.

The Reserve Bank of India (RBI), which has been tasked by the government to ensure retail inflation remains at 4 percent with a margin of 2 percent on either side, has projected CPI inflation for 2025-26 at 3.7 percent, with Q1 at 2.9 percent, Q2 at 3.4 percent, Q3 at 3.9 percent, and Q4 at 4.4 percent.

Commenting on the data, Aditi Nayar, Chief Economist, Icra, said CPI inflation cooled further in May 2025 to a 75-month low of 2.8 percent, led by the food and beverages segment, validating the decision of the Reserve Bank's Monetary Policy Committee to frontload rate cuts.

Overall, the change in the monetary policy stance appears to be a fairly strong signal of a pause, especially when combined with the unexpected CRR cut, she said.

"As of now, we expect rates to be unchanged in the August 2025 policy review. Nevertheless, given our lower inflation and growth forecasts vis-a-vis the projections of the MPC, we are not ruling out the possibility of a final 25 bps rate cut in October 2025, by when the monsoon outturn and its impact on food inflation would be clearer," Nayar said.

NSO collects price data from selected 1,114 urban markets and 1,181 villages covering all states/UTs.

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