India's WPI Inflation Falls to 0.39% in May; Lowest Level in 14 Months

Key Highlights

• May WPI inflation drops to 0.39%, driven by lower food and fuel prices—lowest in 14 months.
• Vegetable costs plunged ~21.6%, pulses dropped ~10.4%, while fuel power deflation deepened—keeping wholesale inflation subdued.

India's annual rate of inflation based on the Wholesale Price Index (WPI) fell to a 14-month low of 0.39 percent in May, down from 0.85 percent in April and 2.05 percent in March, according to data released by the Ministry of Commerce and Industry on Monday.

When compared to April, the May WPI inflation change was negative at (-) 0.06 percent month over month, indicating a downward trend in inflation.Lower food and fuel prices this month compared to last month caused the overall month-over-month inflation rate to decline.

Meanwhile, this year's Consumer Price Index (CPI)-based inflation rate dropped from 2.82 percent in May of last year to 2.82 percent this year. Last week, data showed that retail inflation has fallen to its lowest level since February 2019.

May saw the lowest level of food inflation since October 2021, at 0.99 percent. Food inflation has fallen for the seventh month in a row, while agricultural output has increased.

On Friday, Sanjay Malhotra, the governor of the Reserve Bank, announced that the RBI had also revised its inflation estimate for 2025–2026 from 4% to 3.7%. Due to the sharp drop in inflation, the RBI reduced the repo rate by 50 basis points from 6% to 5.5% during last week's monetary policy review in an effort to spur economic growth.

The RBI also announced a 100 basis point reduction in the Cash Reserve Ratio (CRR), from 4% to 3%.  This reduction will be applied in four installments of 25 basis points each. It is anticipated that the action will improve credit flow and increase liquidity by infusing the banking system with Rs 2.5 lakh crore.

According to the RBI Governor, there are indications of widespread moderation as inflation has slowed dramatically over the past six months, from above the tolerance band in October 2024 to well below the target.

Also Read: Markets Rebound in Early Trade as April Inflation Hits 6-Year Low 

The near-term and medium-term outlook now gives us confidence in not only a long-term alignment of headline inflation with the target of 4%, as expressed at the last meeting, but also in the likelihood that it will undershoot the target by a margin this year.