WPI inflation lowest in 14 months: What does it mean?

Source: Graph complied by the author from RBI database

Positive inflation in May 2025 stemmed largely from price increases in the production of food, electricity, various manufactured goods, chemicals, transportation equipment, and other non-food items.

The food inflation index has declined to 154.1 in May 2025 from 154.2 in April, 2025.

WPI Food Inflation

The WPI Food Index, which includes food articles and food products, increased from 189.3 in April 2025  to189.5 in May 2025.

The WPI Food Index inflation rate declined from 2.55 percent in April 2025 to 1.72 percent in May 2025.

What inflation means to the average household

The wholesale inflation rate in India’s kitchen has seen a significant decrease, with vegetable prices contracting by 21.62 percent in May 2025 compared to18.26 percent in the previous month.

Onion inflation has eased to 14.41 percent in May, while potato inflation stood at (-)29.42 percent. Pulses inflation fell to 10.41 percent and cereal prices stood at 2.56 percent in May.

RBI’s projection

Retail inflation in India declined to a 75-month low of 2.82 percent in May 2025. With inflation easing, the RBI made a significant 0.50 percent reduction in its benchmark policy interest rate this month, bringing it down to 5.50 percent.

In a country where food prices play a crucial role in the economy, this achievement is noteworthy. However, challenges may lie ahead.

The impact is two-fold and immediate. Firstly, with inflation under control, the RBI can now shift its focus towards promoting economic growth. Secondly, the decrease in prices of essential food items like cereals and pulses brings relief to the average Indian consumer who has been facing high grocery costs for years.

During its April meeting, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) observed a sustained decline in inflation, primarily driven by easing food prices, and predicted further moderation in FY 2026.

The MPC revised its inflation forecast for FY 2026 to 4 percent, down from the 4.2 percent estimate made in February.

For the year as a whole (2025-26), inflation is expected to be 3.7 percent. The quarter-wise estimation of inflation by RBI’s MPC is mentioned below

What does  this mean for the economy?

After a 100 basis point rate cut and a reduction in the Cash Reserve Ratio, the RBI is indicating a pause. One may wonder why? This is because the decrease in inflation is partly due to a high-base effect, and although growth is strong, it may slow down if domestic demand weakens or global conditions worsen.

Despite its robust nature, growth could decelerate if domestic demand weakens or global conditions worsen.

The decrease in inflation is partially attributed to the high-base effect.

The RBI is proceeding cautiously as low inflation is not a cause for celebration but rather a delicate balancing act. Prices of fruits and vegetables are already showing signs of rising again, and any disruptions during the rainy season could derail the 2.5 percent forecast.

Going forward, it seems almost certain that the government’s ability to manage food prices through strategic stock releases or duty adjustments will be tested.