India’s retail inflation eased to a 75-month low of 2.82 percent in May, compared with 3.2 percent in April, as food inflation eased below 1 percent for the first time in nearly four years, according to government data released on June 12.

This is the fourth consecutive month that headline inflation has remained below the Reserve Bank of India’s (RBI) mid-point of 4 percent. Food inflation, which has a significant weight in the consumer price index, has stayed below 3 percent for three consecutive months.

“The headline inflation came in broadly in line with our expectations. 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,” said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.

Sequentially, prices rose 0.2 percent in May compared with 0.3 percent in the previous month.

Despite a decline in food inflation, some categories within the food basket continued to witness a faster pace of increase in prices than the previous month. Milk inflaiton rose to 3.15 percent compared with 2.72 percent in the previous month, while oil inflation rose to a 38-month high of 17.9 percent in May.

The government’s recent move to halve the basic customs duty on crude edible oil is also expected to ease price pressures, as imports account for nearly 60 percent of India’s edible oil consumption.

A hike in import duties on edible oils in September 2024 had pushed edible oil inflation into double digits. The category has remained persistently elevated, with inflation hovering above 13 percent for the past six months.

Although fruits inflation eased to 12.7 percent from 13.9 percent in the previous month, it remained in double digits for a fifth consecutive month.

Clothing and footwear inflation, though benign, rose to 2.18 percent from 2.07 percent in the previous month. Health, transport, personal care and effects inflation rose faster in May compared with the previous month.

The RBI, in its monetary policy review on June 6, further lowered its inflation forecast for FY26 to 3.7 percent from 4 percent estimated earlier. The revision aligns with the median estimate from a Moneycontrol poll of economists conducted ahead of the policy meeting.

Experts believe that a favourable monsoon, combined with subdued global commodity prices, will help contain inflation through the fiscal year.

Economists expect inflation to dip further in June.

"Ind-Ra expects the disinflationary trend in various food items to continue even in June 2025. This is likely to keep retail inflation at around 2.5% in June 2025," said Paras Jasrai, associate director, India Ratings and Research.

A view also propounded by Aditi Nayar, chief economist of ratings agency ICRA.

"ICRA expects the CPI-food and beverages inflation to ease further in June 2025, supported by a favorable base. This is expected to pull down the headline CPI inflation print to ~2.5% in the month," Nayar said.