India’s retail inflation hits 6 year low to 2.82% in May 2025

India’s retail inflation fell sharply to a six-year low of 2.82% in May, as per government data. In response, the Reserve Bank of India (RBI) has revised its CPI inflation forecast for FY26 downward to 3.70%. Despite ongoing global uncertainties, the RBI anticipates further easing of price pressures, supported by a broad-based decline in inflation over the past six months.

India’s retail inflation fell sharply to 2.82% in May 2025, marking its lowest level in over six years, according to government data released on Thursday. This represents a 34 basis point drop from April’s 3.16% and is the lowest year-on-year inflation recorded since February 2019.

The decline surpassed expectations. A Reuters poll of 50 economists had projected inflation to ease to 3% for the month. The sharp drop was primarily attributed to a substantial cooling in food inflation, favourable base effects, and modest price increases in essential items.

Food Inflation at Multi-Year Low

Food inflation—the most volatile component of the Consumer Price Index (CPI)—declined significantly to 0.99% in May from 1.78% in April, a fall of 79 basis points. This marks the lowest food inflation since October 2021. Rural and urban food inflation stood at 0.95% and 0.96% respectively, indicating widespread price easing across regions.

Vegetable prices registered a steep year-on-year decline of 13.7%, following an 11% fall in April. Prices of pulses continued their downward trend, declining by 8.22% compared to a 5.23% fall in the previous month. Cereal inflation also moderated, with prices rising 4.77% in May compared to 5.35% in April.

According to Aditi Nayar, Chief Economist and Head, Research & Outreach at ICRA Ltd., “CPI-food and beverages inflation is expected to ease further in June, supported by a favourable base. This could potentially bring headline CPI inflation down to around 2.5%.” However, she cautioned that the recent pause in the progress of the South-West monsoon in early June is a key factor to watch. “The temporal and spatial distribution of rainfall will be crucial for crop yields. Excessive rainfall in short periods could damage standing crops,” she added.

Rural and Urban Inflation Trends

Rural India saw inflation drop to 2.59% in May from 2.92% in April, while rural consumer food price inflation (CFPI) fell from 1.85% to 0.95%. In urban areas, CPI inflation eased to 3.07% from 3.36% in the previous month, with urban CFPI falling from 1.64% to 0.96%.

The fuel and light category also saw a slight cooling, with year-on-year inflation easing to 2.78% in May from 2.92% in April. However, urban housing inflation edged up slightly to 3.16%, from 3.06% a month earlier.

Policy Implications

May marks the fourth consecutive month that retail inflation has remained below the Reserve Bank of India’s (RBI) medium-term target of 4%, and the seventh month under the 6% upper tolerance limit. The data comes shortly after the RBI’s Monetary Policy Committee (MPC) cut the repo rate by 50 basis points to 5.5%, marking the third consecutive rate cut this year. The MPC also shifted its policy stance from “accommodative” to “neutral,” signalling a more balanced outlook between growth and inflation control.

With inflation well within the RBI’s comfort zone, policymakers now have more room to focus on supporting economic growth without immediate pressure from rising prices.