In first time in 6 years, CPI inflation may have fallen below 3% in May
In a significant shift for the Indian economy, the Consumer Price Index (CPI)-based inflation is expected to have slipped below the 3% mark in May 2025 — a level not seen since 2019. This rare milestone reflects easing food prices, stable fuel costs, and improved supply chains across critical sectors.
According to economists and early estimates, May’s retail inflation may have settled between 2.7% and 2.9%, marking a major decline from 3.16% in April. If confirmed by official government data, this would be the first time in six years that India’s CPI inflation has dropped below the Reserve Bank of India’s (RBI) lower tolerance threshold of 4% for four consecutive months.
What Is CPI Inflation?
CPI inflation measures the average change in prices over time that consumers pay for a basket of goods and services. It includes essentials like food, housing, fuel, healthcare, and education. When inflation is low, it generally reflects greater price stability, which is beneficial for household budgets and business planning.
The RBI monitors this indicator closely, using it to guide decisions on interest rates. Persistent low inflation provides room for monetary easing and signals that the cost-of-living pressure is under control.
Why Did CPI Fall Below 3%?
1. Cooling Food Prices
One of the primary drivers behind the drop in inflation has been the moderation in food prices, particularly in cereals, pulses, and edible oils. While some vegetables, such as tomatoes and potatoes, witnessed price spikes, their overall weight in the inflation basket is relatively low.
Wheat and rice prices remained stable due to ample public stock and supportive government policies. In addition, pulses — previously under pressure — have shown a decline thanks to favorable rabi crop output.
2. Energy Stability
Fuel and light, which have a significant impact on both rural and urban inflation, saw minimal price volatility in May. Global crude oil prices remained range-bound, while domestic LPG and petrol prices were largely unchanged. This price consistency helped curb the cost of transportation and logistics, further easing inflationary pressure on essentials.
3. Stronger Supply Chains and Imports
Improved supply chain management and the timely import of essential goods contributed to market stability. The government’s proactive steps in importing pulses and oilseeds early in the year prevented shortfalls and panic buying, which often trigger price surges.
A Look Back: When Was Inflation Last This Low?
The last time CPI inflation dipped below 3% was in April 2019, when it recorded 2.99%. However, that dip was short-lived, and inflation quickly rose due to a mix of monsoon volatility, geopolitical disruptions, and post-COVID economic shifts.
In the years that followed, global inflationary pressures, the Russia-Ukraine war, and supply constraints pushed retail inflation in India to multi-year highs — breaching 7% in early 2022.
Today’s possible sub-3% figure signals a cyclical cooling of inflation and reflects India’s resilience in managing economic uncertainty.
What Does This Mean for the RBI?
The Reserve Bank of India has maintained a cautious monetary policy stance in recent years, keeping its repo rate unchanged at 6.50% since early 2023. Although inflation has been gradually declining since February 2024, the RBI has refrained from cutting rates too soon.
With inflation now consistently under 4%, and possibly below 3%, rate cuts may be on the horizon. Such a move could help revive credit growth, boost investments, and support India’s broader economic recovery, especially in interest-sensitive sectors like housing and automobiles.
However, the RBI is likely to remain vigilant about potential inflationary risks from global energy prices or El Niño-linked disruptions to the monsoon.
Impact on the Common Man
For ordinary consumers, lower inflation means relief at the grocery store and petrol pump. Household budgets that were squeezed by rising prices over the past few years may now enjoy a breather.
Additionally, lower inflation boosts purchasing power, allowing families to spend more on discretionary items like clothing, appliances, and education. It can also improve consumer sentiment, which is a critical driver of economic activity in a consumption-led economy like India.
Global Context: U.S. CPI Falls Below 3% Too
Interestingly, India is not alone in this inflation milestone. In May 2025, the United States also reported its headline CPI at 2.4%, continuing a trend of global disinflation. Energy prices in the U.S. declined, and consumer goods remained affordable despite earlier concerns about trade tariffs.
This global trend of cooling inflation may encourage central banks across countries — including the U.S. Federal Reserve — to consider loosening monetary policy, potentially reversing the high-interest rate era that began in response to the pandemic.
What to Watch Next
While the sub-3% inflation print is cause for optimism, several factors could influence the trend going forward:
- Monsoon performance: A weak monsoon season can reduce agricultural output, leading to food price spikes.
- Global energy markets: Any sudden jump in crude oil prices could have downstream effects on transport and manufacturing costs.
- Geopolitical tensions: International conflicts or trade restrictions may once again disrupt supply chains, reversing the disinflationary trend.
Final Thoughts
India’s CPI inflation possibly falling below 3% in May 2025 is a landmark development, highlighting the effectiveness of both fiscal and monetary strategies in restoring price stability. For the first time in six years, policymakers, households, and businesses alike can breathe a little easier.
However, staying below 3% may not be sustainable for long, especially with looming monsoon uncertainties. The RBI and government must continue to monitor domestic and global triggers to ensure inflation remains within target — while also supporting economic growth and employment.
