India’s Consumer Price Index (CPI) inflation eased to 2.82% YoY in May 2025 from 3.16% in the previous month. The decline in headline inflation was driven by a fall in food inflation to 1.5% YoY in May 2025 from 2.1% YoY in April 2025. Food inflation is no longer as broad-based, with 30% of food items witnessing greater than 6% inflation, down from 45% in December 2024.

Within food, a lower contribution from vegetables drove the decline in headline inflation. Vegetable inflation eased to -14.0% YoY in May 2025 from -11.0% YoY in April, on account of a muted 0.1% MoM rise in vegetable prices (May’24: 3.3% MoM).

Core inflation (which excludes food and fuel) picked up to 4.3% YoY from 4.2% in the previous month. Underlying inflation pressures remained subdued, as indicated by a refined measure of core inflation (which also excludes transportation fuel and valuables), recorded at 3.5% YoY in May 2025.

We expect inflation to undershoot the 4% target in FY26. The RBI is likely to adopt a ‘wait and watch’ approach in the near term. A further 25 bps cut remains on the table if growth risks intensify.

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