India’s inflation slumps to 6-year low as food prices cool sharply

India’s headline retail inflation slumped to a six-year low in May, thereby increasing expectations of a sustained ease in price pressures. As per government data released on Thursday, June 12, consumer price inflation slowed to a 2.82% year-on-year (YoY), which is down 34 basis points from its April figure, thereby marking the lowest level reached since February 2019.

The deceleration in prices has been driven by a sharp fall in food inflation, plus favourable base effects and muted rise in key household categories. The Consumer Food Price Index (CFPI), which is an indicator of food inflation, eased to 0.99% in May, down from 1.78% in April, showcasing a reduction in prices across key categories, like vegetables, pulses, fruits, cereals, sugar, and eggs.

Earlier this month, following a 50-basis points reduction in repo rate, the Reserve Bank of India Governor, Sanjay Malhotra, in a press briefing had pointed out that the central bank’s monetary policy measure was taken in lieu of easing inflationary signals in the Indian economy.

“Inflation has softened significantly over the last six months from above the tolerance band in October 2024 to well below the target, with signs of broad-based moderation,” RBI Governor Malhotra had said following the monetary policy announcement earlier this month.

As per government figures, rural inflation eased to 2.59% in May, slightly down from 2.92% it had witnessed in April, while urban inflation came down to 3.07% from 3.36% over the same period.

Food inflation in rural areas stood at 0.95%, down sharply from 1.85% in April, while urban CFPI fell to 0.96% from 1.64%.

The only notable uptick was seen in urban housing, where inflation edged higher to 3.16% in May from 3.06% in April, pointing to lingering cost pressures in the rental and construction segments.

Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank, talking about the latest inflation figures, has said that the easing of inflationary pressures has been largely in line with the bank’s targets.

“High frequency data shows that the vegetable and fruit prices have started surging, offseting 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 dependant,” Bharadwaj noted.