India’s Inflation Hits 25-Month Low—What’s Driving the Decline?

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India’s core consumer price-based inflation for May has been estimated at 4.17-4.2%, marking a continued downward trend in price pressures. The overall retail inflation eased to 4.25%, its lowest level in over two years, driven by moderating food and fuel prices.

The consumer food price index (CFPI) dropped to 2.91%, reflecting a sharp decline in vegetable prices, which contracted by 8.1%. Meanwhile, cereal inflation remained elevated at 12.65%, though lower than the previous month’s 13.67%.

Economists attribute the decline to base effects, lower global energy prices, and seasonal adjustments. However, concerns remain over El Niño disruptions, higher minimum support prices (MSP) for crops, and monsoon delays, which could push inflation higher in the coming months.

The Reserve Bank of India (RBI) has maintained its stance on interest rates, signaling that inflation risks remain despite the recent easing. Analysts predict that inflation could stay below 5% in June but may rise in Q2 FY26 due to weather-related uncertainties.

With inflation now within the RBI’s 2-6% tolerance band for the third consecutive month, policymakers are closely monitoring global commodity trends and domestic supply chain dynamics to assess future risks.

Sources: Economic Times, CNBC TV18