Food inflation eased sharply to 0.99 per cent in May from 1.78 per cent in April, driven by lower prices of pulses, vegetables, fruits, cereals
Reporting the lowest annual rise in consumer prices since February 2019, India’s retail inflation slowed to 2.82 per cent in May from 3.16 per cent in April, according to data released by the National Statistics Office (NSO) on Thursday.
This is the fourth straight month that inflation has stayed below the Reserve Bank of India’s medium-term target of 4.0 per cent, the longest such streak in nearly six years. The notable fall in headline and food inflation during May 2025 is primarily attributed to the decline in prices of pulses and products, vegetables, fruits, cereals and products, household goods and services, sugar and confectionery, and eggs, along with a favourable base effect, the NSO said in a statement.
“Deciphering the state-wise inflation trends, the number of states or Union Territories (UTs) inflation above 4 per cent has declined to six in May 2025, as against 32 States or UTs that had inflation above 4 per cent as in October 2024. During October 2024 to May 2025, overall all India inflation declined by 3.38 per cent, except Goa, where inflation increased by 2.09 per cent. Inflation in bigger states continues to outstrip the all-India inflation rate of the same month,” stated Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India.
Moderating Food Prices
The moderation in inflation was largely due to a significant drop in food prices. Food inflation eased sharply to 0.99 per cent in May from 1.78 per cent in April, driven by lower prices of pulses, vegetables, fruits, cereals, sugar, eggs, and household goods. The SBI report highlighted that vegetable prices continued its southward trend and decline by 13.7 per cent in May. Pulse prices declined by 8.2 per cent while spices and meat and fish prices also exhibited decline in May.
The headline inflation came in broadly in line with our expectations. High-frequency data shows that the vegetable and fruit prices have started surging, offsetting the downward trend visible in cereals and pulses. While the overall inflation trajectory is expected to remain benign, the recent frontloaded policy actions and the guidance of limited room for incremental easing suggest a prolonged pause for now, with further actions being highly data-dependent,” explained Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.
Declining Urban Inflation
In rural areas, inflation cooled to 2.59 per cent in May from 2.92 per cent in the previous month, while urban inflation declined to 3.07 per cent from 3.36 per cent. Meanwhile, housing inflation edged higher to 3.16 per cent in May from 3.06 per cent in April.
Similarly, in the urban segment, a significant decline was observed, with headline inflation falling from 3.36 per cent in April 2025 to 3.07 per cent (provisional) in May 2025, accompanied by a sharp decrease in food inflation from 1.64 per cent in April 2025 to 0.96 per cent (provisional) in May 2025. Looking ahead, we expect food inflation to cool further, attributed to the anticipated good monsoon,” stated Hemant Jain, President, PHD Chamber of Commerce and Industry (PHDCCI).
Health inflation rose to 4.34 per cent from 4.25 per cent, while education inflation remained stable at 4.12 per cent. Transport and communication costs also saw an uptick, rising to 3.85 per cent from 3.67 per cent.
Growth-centric Approach
The data comes a week after the Reserve Bank of India surprised markets by cutting the repo rate by 50 basis points, citing continued low inflation as a key factor in its decision to support economic growth. Given this benign inflation expectations on back of 50 bps rate cut recently in June policy, the current focus of the RBI is to support the momentum in capital formation for more durable growth, SBI said.
“On the monetary policy front, the RBI’s frontloaded rate cuts are likely to limit the room for further easing. Looking ahead, we do not expect further rate cuts from the RBI unless downside risks to growth materialise,” CareEdge Ratings mentioned in a report.
The consumer price index (CPI) inflation is expected to remain at comfortable levels in the near term, averaging 4 per cent for FY26, supported by moderating food prices, stable core inflation, and favourable base effects. However, downside risks from supply chain disruptions due to trade policy uncertainties and geopolitical tensions remain key monitorable, as per a report by CareEdge Ratings.
