India's Retail Inflation Drops to 2.82%

India's retail inflation dropped sharply to 2.82% in May 2025, marking its lowest year-on-year level since February 2019, according to the latest data released by the Ministry of Statistics and Programme Implementation (MoSPI). The significant moderation from 3.16% in April is largely attributed to easing food prices, which have played a central role in bringing down the overall Consumer Price Index (CPI).

The trend was observed across both rural and urban sectors, though rural areas saw a slightly more pronounced softening. Rural inflation eased to 2.59%, while urban inflation settled at 3.07% for the month of May. This indicates a broad-based cooling in prices across consumption segments and geographies.

One of the most notable factors in this inflation dip was the sharp decline in food inflation, based on the All India Consumer Food Price Index. The food inflation rate in May was provisionally reported at just 0.99%, down significantly from 1.78% in April, and the lowest recorded since October 2021. In rural areas, food inflation fell to 0.95%, compared to 1.85% in the previous month. Similarly, urban food inflation dropped from 1.64% in April to 0.96% in May, indicating a consistent trend across both sectors.

According to the Ministry, the decline in both headline inflation and food inflation is primarily due to falling prices in several key categories. These include pulses and products, vegetables, fruits, cereals and related products, as well as sugar and confectionery, eggs, and household goods and services. The favourable base effect—comparing current prices to relatively higher prices in the same period last year—also contributed to the decline.

This sharp moderation in inflation offers a positive signal for the broader economy, particularly in terms of household consumption and monetary policy outlook. If the trend continues, it may provide room for the Reserve Bank of India (RBI) to reconsider its stance on interest rates, while also easing cost-of-living pressures on consumers.