Key Points

According to the statistics ministry, the year-on-year inflation rate based on Consumer Price Index (CPI) for the month of May was 2.82 per cent (provisional). It is the lowest year-on-year inflation since February 2019.

There is a decline of 34 basis points in the headline inflation of May in comparison to April 2025.

The significant decline in inflation in May is attributable to a decline in prices of pulses and products, vegetables, fruits, cereals and products, households goods and services, sugar and confectionery and egg, coupled with the favourable base effect.

The inflation rate is within the Reserve Bank of India's (RBI) manageable range of 2-6 per cent.

Retail inflation last breached the Reserve Bank of India's 6 per cent upper tolerance level in October 2024. Since then, it has been in the 2-6 per cent range, which the RBI considers manageable.

Food prices were a concern for Indian policymakers, who wished to sustain retail inflation around 4 per cent.

Inflation has been a concern for many countries, including advanced economies, but India has largely managed to steer its inflation trajectory well. The RBI held its benchmark repo rate steady at 6.5 per cent for the eleventh consecutive time, before cutting it first time in about five years in February 2025.

Analysts expect inflation to remain under control, allowing the RBI to focus on supporting economic growth. The recent 50 basis points repo cut was quite an indication.

The inflation outlook for the year 2025-26 has been revised downwards from RBI's earlier forecast of 4 per cent to 3.7 per cent.

The following are some of the excerpts of views from analysts and experts on the May retail inflation numbers:

Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank:

"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 suggests prolonged pause for now, with further actions being highly data-dependent."

Rajani Sinha, Chief Economist, CareEdge Ratings:

"We expect CPI inflation to remain at comfortable levels in the near term, averaging 4 per cent for FY26. This will be 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. On the monetary policy front, the RBI's frontloaded rate cuts are likely to limit the room for further easing unless growth weakens materially."

Mahendra Patil, Founder and Managing Partner, MP Financial Advisory Services LLP:

"The May CPI print at 2.82 per cent reaffirms that the RBI's front-loaded rate cuts have anchored inflation expectations effectively. With a neutral stance and macro stability in place, the central bank is expected to pause and assess the transmission of its cumulative 100 bps rate cut. The interplay of a favourable monsoon, rising rural incomes, and global disinflation could bolster growth without reigniting inflation. However, two key risks loom: the narrowing rate differential with the US may limit RBI's easing room due to potential capital outflows, while the expiry of the U.S. tariff pause on Indian exports could weigh on external demand and current account stability. In this delicate environment, monetary policy will likely remain data-driven, calibrated, and globally aligned."

Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Group:

"We expect this downward trend in retail inflation to continue through October 2025, with the possibility of a mild uptick thereafter; nevertheless, average inflation for FY26 is likely to undershoot the RBI's downwardly revised estimate of 3.7 per cent. Despite this disinflation, the front-loaded rate cuts and liquidity-boosting CRR reductions already announced suggest the RBI will remain on hold until at least September 2025. However, if inflation remains subdued and growth begins to cool, further rate cuts could be on the cards. While some of the recent disinflation is driven by a high base, the combination of softening price pressures and robust growth creates a favourable backdrop for the Indian economy and equity markets."

Aditi Nayar, Chief Economist and Head - Research and Outreach, ICRA Ltd:

ICRA expects the CPI-food and beverages inflation to ease further in June 2025, supported by a favorable base. This is expected to pull down the headline CPI inflation print to 2.5 per cent in the month.

Dipti Deshpande, Principal Economist, Crisil Limited:

Given the current inflation trajectory, we expect headline inflation to average 4% this fiscal, compared with 4.6 per cent in the previous one. Lower inflation keeps the window open for one more repo rate cut by the Reserve Bank of India over the reduction of 100 basis points announced so far.

- ANI