India: Inflation falls to over five-year low in May
Latest reading: Inflation came in at 2.8% in May, down from April’s 3.2%. May’s figure represented the weakest inflation rate since February 2019 and undershot market expectations. Food price pressures continued to cool thanks to recently strong harvests, which have been boosted by last year’s strong monsoon.
Accordingly, the trend pointed down mildly, with annual average inflation coming in at 4.3% in May (April: 4.5%).
Finally, consumer prices rose 0.21% over the previous month in May, a smaller increase than the 0.31% increase recorded in April.
Outlook: Our Consensus is for average inflation to stay below the Reserve Bank of India’s 4.0% target until January–March 2026 (Q4 FY 2025), at which point it’s probable that the lagged effect of lower interest rates will begin stoking price pressures.
Overall in fiscal year 2025, inflation is projected to average around target, contained by the recent drop in food price growth and lower oil prices. Looking ahead, key risks include weather developments, vital for agriculture, as well as U.S. trade policy due to its impact on external demand.