India’s Retail Inflation Trends in 2025

India’s retail inflation rate fell below 3 per cent for the first time in over six years. This decline is primarily attributed to falling food prices, despite an increase in some vegetable costs. The Consumer Price Index (CPI) data indicated a multi-year low of 3.16 per cent in April 2025, with forecasts suggesting a further drop to 2.7 per cent in May.

Current Inflation Context

Retail inflation in India has shown changes recently. The CPI has been on a downward trend, marking its seventh consecutive month of decline. Economists predict that the CPI will remain below 3 per cent for the first time since April 2019. The decrease in inflation is largely driven by a reduction in the prices of cereals and pulses, despite rising costs for some vegetables like potatoes and tomatoes.

Core Inflation

Core inflation, which excludes food and fuel, is expected to rise to around 4.2 per cent. This measure reflects underlying demand pressures in the economy. Since mid-2024, core inflation has gradually increased from 3.1 per cent. Economists suggest that recent trends in core inflation should be viewed cautiously, as they are influenced by various factors, including lower global commodity prices and weak domestic growth.

Food Price Dynamics

Food inflation has been projected to trend lower due to a robust winter crop harvest and increased supply of pulses. However, some food items, particularly vegetables, have seen a rise in prices after months of decline. The prices of tomatoes and potatoes increased by 9.9 per cent and 3 per cent, respectively, in May 2025. This fluctuation indicates that the trajectory of essential food items needs careful monitoring.

Monetary Policy Implications

The Reserve Bank of India (RBI) has adjusted its inflation forecast, predicting an average CPI of 2.9 per cent for April to June 2025. This positive inflation outlook has enabled the RBI to reduce interest rates by 100 basis points in 2025 to stimulate economic growth. Despite the anticipated sub-4 per cent inflation, the RBI has shifted its monetary policy stance to ‘neutral’, indicating limited scope for further rate cuts.

Future Inflation Expectations

Analysts expect inflation to rise to 4.4 per cent by the end of the fiscal year. Factors contributing to this increase include the potential impact of the monsoon on supply chains and the recovery of food prices. The Monetary Policy Committee’s decision to tighten its policy stance reflects caution in navigating the economic landscape.

Leave a Reply

Your email address will not be published. Required fields are marked *