This marks the fourth straight month of sub-4% inflation — the longest such streak in five years, reinforcing expectations of a sustained softening trend. The data release closely follows the Reserve Bank of India’s (RBI) recent 50 basis point rate cut, which brought the repo rate to 5.5%. This is the third consecutive rate cut by the central bank, totaling a 100 basis point reduction since February, signaling a decisive shift from inflation containment to growth stimulation.

Food inflation, a key driver of headline CPI, fell to 0.99% in May, from 1.78% in April and 8.69% a year earlier, reflecting significant softening in prices of perishables.

“India’s inflation came in close to our expectations in May, below 3%—the softest since mid-2019,” noted Radhika Rao, Executive Director and Senior Economist, DBS Bank. “Selected perishable food groups rose only modestly on a sequential basis and moderated sharply on annual terms, aiding the headline number.” Rao projected that average CPI inflation will remain below 4% for FY26.

She also noted that benign core-core inflation (excluding food and fuel) points to lingering economic slack, justifying the RBI’s move to frontload monetary and liquidity stimulus. However, Rao cautioned that monsoon progress, which has currently stalled after an early onset, would be critical to watch for near-term inflation dynamics.

The last time CPI inflation stayed below 3% for a comparable duration was between November 2018 and April 2019—a period during which the RBI had also eased policy rates by 50 basis points.

The latest inflation figures are likely to reinforce expectations that the central bank may continue to adopt a pro-growth stance in the near term, especially amid improving macroeconomic stability and a favourable global commodity backdrop.

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The significant decline was primarily attributed to a steep drop in food prices. The Consumer Food Price Index (CFPI) dropped to 2.69% in March from 3.75% in February—the lowest level since November 2021. Major contributors to the fall included reduced prices of vegetables, eggs, pulses, meat and fish, cereals, and milk products.

Consumer Price Index (CPI)-based inflation remains well within the Reserve Bank of India’s (RBI) medium-term target of 4%, and comfortably inside its 2-6% tolerance range.

Rural inflation eased to 3.25% in March from 3.79% in February, while rural food inflation declined more sharply to 2.82% from 4.06%. Urban inflation, on the other hand, edged up to 3.43% from 3.32%, although urban food inflation dropped to 2.48% from 3.15%. Housing inflation in urban areas rose marginally to 3.03% from 2.91%.

Meanwhile, wholesale price inflation (WPI) also moderated to 2.05% in March from 2.38% in February, as per data from the Ministry of Commerce and Industry. The easing in WPI was largely due to lower prices in the food, fuel, and power segments, despite continued increases in the prices of manufactured goods.

For FY26, the RBI projects CPI-based inflation at 4.0%, assuming a normal monsoon. Inflation is expected to remain subdued in the first half of the fiscal year, with quarterly projections at 3.6% for Q1, 3.9% for Q2, and 3.8% for Q3, before rising slightly to 4.4% in Q4.

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The Consumer Price Index (CPI)-based annual retail inflation stood at 5.22% in December, down from 5.48% in November. This figure also marked a decline compared to 5.69% recorded in December of the previous year.

The latest inflation rate remains within the Reserve Bank of India’s (RBI) medium-term target range of 2-6%.

Food inflation, a significant contributor to overall inflation, rose by 8.39% year-on-year in December, lower than the 9.04% increase in November and 9.53% in the same period last year. In earlier months, food inflation was notably higher, with rates of 10.87% in October, 9.24% in September, and 5.66% in August.

While food inflation moderated overall, specific categories like meat and fish, eggs, and fruits witnessed sharper price increases in December compared to November. The inflation for food and beverages rose by 7.69% in December, compared to 8.20% in the preceding month.

Several states, including Andhra Pradesh, Delhi, Gujarat, Himachal Pradesh, Jharkhand, Maharashtra, Rajasthan, Telangana, and West Bengal, reported lower inflation rates than the national average during the month.

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