India’s CPI Inflation Falls to Six-Year Low in May; RBI Seen Prioritizing Growth

June 13, 2025 — India’s Consumer Price Index (CPI) inflation eased sharply to a six-year low of 2.82% in May 2025, down from 3.16% in April, driven by continued moderation in food prices. This marked a significant cooling in headline inflation and reinforced expectations that the Reserve Bank of India (RBI) will maintain a growth-supportive monetary stance for the foreseeable future.

Food Inflation Softens Further

Food inflation dropped to just 1.0% in May from 2.14% in April, as prices of key staples remained under pressure:

• Vegetables inflation saw a deeper deflation at -13.7%, compared to -11.0% in the previous month.

• Pulses prices contracted sharply, with inflation falling to -8.2% from -5.2%.

• Cereals inflation moderated to 4.8%, down from 5.4% in April.

However, oils and fats remained an outlier, with inflation at a high 18.0% year-on-year, indicating continued stress in this sub-segment.

Core and Other Inflation Segments Stable

Inflation across other categories remained well-anchored:

• Housing inflation held steady at 3.2%.

• Fuel and light inflation moderated slightly to 2.8%.

• Miscellaneous inflation — which includes services — edged up marginally to 5.1% from 5.0%.

Core inflation (excluding food and fuel) inched up slightly to 4.2% from 4.1% on a sequential basis, but remained within comfort zones.

Outlook: CPI Likely to Fall Further in June

Early data for the first half of June indicates that food prices have remained soft and are largely unchanged from May averages. If current trends persist, headline CPI inflation is expected to fall to around 2.5% in June, bringing further relief to consumers and policymakers alike.

Looking ahead, a normal monsoon will be critical in keeping food prices benign through the kharif season. Assuming favorable weather, CPI inflation is likely to stay below RBI’s forecast of 3.7% for FY26, strengthening the case for policy flexibility.

RBI Shifts Focus Toward Growth

The RBI has already signaled a pivot toward supporting economic growth. In its last policy review, the central bank cut the repo rate by 50 basis points to 5.5%, while shifting its stance from “accommodative” back to “neutral.” This indicates a preference to hold rates steady for now, unless there are significant shifts in the growth or inflation outlook.

However, there are growing expectations that soft inflation and global economic uncertainties could lead to GDP growth undershooting the RBI’s FY26 projection of 6.5%. If both inflation and growth come in below estimates, the RBI could have room to cut rates again, possibly in October or December.