Inflation falls, but don’t lower the guard

INDIA’s retail inflation, as measured by the Consumer Price Index (CPI), dropped sharply to 2.82 per cent in May 2025. This is its lowest level in over six years. The dramatic cooling, primarily driven by easing food prices, is a welcome reprieve for consumers, especially those in the lower income brackets who spend a large share of their budgets on food. The sharp contraction in prices of vegetables (–13.7 per cent), pulses (–8.2 per cent), spices and meat has been central to this trend. Food and beverages inflation dropped to 1.5 per cent, marking the seventh consecutive month of moderation. However, this relief is partial. Inflation in edible oils surged into double digits, driven by global price trends, reduced oilseed sowing and India’s heavy dependence on imports. Fruits, too, saw price spikes. The government’s move to halve the import duty on crude edible oils is a timely measure, but its impact will take time to reflect.

With inflation now well below the Reserve Bank of India’s 4 per cent target and interest rates having already seen some cuts, the central bank is expected to adopt a wait-and-watch approach. A further rate cut in August appears unlikely, especially since core inflation in housing, clothing and tobacco has either stayed firm or inched up.

While the inflation trajectory looks benign for now, global uncertainties, monsoon performance and oil price volatility continue to pose risks. Moreover, lower inflation doesn’t mean that all is well. It must be accompanied by sustained income growth and job creation to truly benefit the masses. The government must use this period of price stability to strengthen supply chains, address agricultural bottlenecks and reduce import dependencies. A vigilant, data-driven approach is crucial to avoid complacency since inflation can quickly heat up again.

Editorials