After easing of food inflation, the cooling effect

By Admin

13 Jun, 2025

Retail inflation hits multi-year low

India’s inflationary environment has seen a remarkable shift in recent months. Retail inflation, as measured by the Consumer Price Index (CPI), dropped to a multi-year low of 2.82% in May 2025, according to fresh data from the National Statistics Office. This is the lowest reading since February 2019 and brings the quarterly average inflation (April-May) to just under 3%   aligning closely with the Reserve Bank of India’s (RBI) forecast of 2.9% for Q1. This also marks the fourth consecutive month that inflation has remained below the RBI’s target of 4%.

Food inflation: The key driver of the fall

The substantial decline in overall inflation was largely driven by the softening of food prices. The food price index recorded a moderation led by a significant drop in vegetable prices (-13.7%) and pulses (-8.22%). However, this cooling was not universal   oils, fats, and fruits still showed double-digit inflation, indicating pockets of pressure within the food segment.

The good performance of the agricultural sector last year, which posted a healthy 4.6% growth, helped ease prices through improved rabi crop yields. However, looking ahead, much hinges on the southwest monsoon. As of June 12, rainfall is 33% below its long-term average, a shortfall that could affect the kharif crop, sowing of which has already begun. Monsoon performance will be a crucial determinant of food supply stability and price trends in the coming months.

Stable core inflation and muted pressures

While food inflation eased, core inflation   which excludes the volatile food and fuel components   remained steady at 4.3%. Inflation continues to be elevated in categories like personal care and effects, suggesting uneven price dynamics across sectors. Analysts from Nomura previously observed that the current inflation environment reflects muted core pressures, influenced by lower global commodity prices, weak domestic demand, subdued wage growth, and increased imports from China. These factors together are helping to anchor household inflation expectations.

Monetary policy easing: What next?

In its June meeting, the Monetary Policy Committee (MPC) responded to the easing inflation by slashing the benchmark repo rate by 50 basis points, taking it to 5.5%. Since February, the cumulative rate cut stands at 100 basis points, along with a 100-basis-point reduction in the cash reserve ratio to aid monetary transmission. Despite these moves, RBI Governor Sanjay Malhotra has cautioned that “monetary policy is left with very limited space to support growth,” signaling a cautious outlook ahead.

Looking forward, the central bank forecasts inflation to gradually inch upwards to an average of 3.7% for the year, although some market watchers remain optimistic for a lower print. The monsoon’s performance, the kharif output, and the evolution of global commodity prices will be vital factors shaping inflation and, by extension, future monetary policy.

Conclusion: A wait-and-watch phase begins

The recent cooling in inflation brings relief to consumers and allows the central bank temporary breathing room. However, the path ahead is marked by uncertainty, especially in terms of weather patterns and global economic shifts. The RBI and other stakeholders are likely to maintain a cautious, data-driven stance, as they monitor the interplay between prices, production, and growth.