CHENNAI: As India's Consumer Price Index (CPI)-based inflation is on declining trend, rating agency CRISIL expect the headline inflation to average 4% this fiscal, from 4.6% last fiscal, and this lower inflation, according to the agency, keeps the window open for one more repo rate cut by the Reserve Bank of India (RBI) apart from the 100 basis points cut announced so far.
India's Consumer Price Index (CPI)-based inflation declined to 2.82% in May 2025, marking the lowest reading since February 2019. This represents a decrease from 3.16% in April, primarily driven by a significant drop in food inflation.
The decline in CPI inflation to 2.82% in May 2025 reflects a broad-based easing of price pressures, particularly in food and fuel sectors, says CRISIL. "With core inflation remaining subdued and favorable agricultural prospects, the outlook for inflation in FY26 appears positive.
The RBI's accommodative monetary policy stance may continue to support economic growth while keeping inflation within target levels," it stated in its immediate response to the latest CPI data.
Food Inflation Declines Sharply
Food inflation fell to 1.0% in May, the lowest since October 2021, down from 1.8% in April. This decline was largely due to reduced inflation in cereals and a deeper deflation in vegetables and spices. The easing of food prices suggests an improvement in supply conditions and reduced demand pressures .
Fuel Inflation Eases Slightly
Fuel inflation reversed its upward trend, easing marginally to 2.8% in May from 2.9% in April. This moderation in fuel prices contributed to the overall decline in inflation .
Core Inflation Remains Subdued
Core inflation, which excludes food and fuel items, eased to 4.18% in May from 4.23% in April. This indicates that underlying inflationary pressures remain contained .
Outlook for FY26
The Reserve Bank of India (RBI) projects CPI inflation to average 4.0% in FY26, down from 4.5% in FY25. This forecast is supported by expectations of a robust rabi harvest and a healthy kharif output, aided by the forecast of an above-normal monsoon. Additionally, assuming no sustained impact from geopolitical tensions, Brent crude oil prices are projected to remain subdued, ranging between $65 and $70 per barrel, which should help contain non-food inflation .