Inflation Overview - May 2025
The inflation data for May 2025 highlights significant changes in economic indicators within a month.
Retail and Wholesale Inflation
- Retail inflation dropped to a 75-month low of 2.8%, primarily due to easing food prices.
- Wholesale inflation decreased to 0.4%, the lowest in over a year.
- The drop in wholesale inflation was driven by a significant 12.4% contraction in crude oil and natural gas prices.
- An oversupply of oil and a slowing global economy contributed to falling oil prices.
- India, which imports about 80% of its oil requirements, benefited from lower global oil prices.
Reserve Bank of India (RBI) Forecast
- RBI predicted the annual inflation rate at an average of 3.7%, down from 4% forecasted in April.
- Analysts suggest retail inflation could drop to 2% in June, the lower end of RBI’s comfort band.
Factors Affecting Inflation
- Israel's attack on Iran in June led to an 8% spike in oil prices in a single day.
- Potential escalation in tensions could lead to a 40%-50% increase in shipping costs, impacting India's oil supply.
- India's Commerce Ministry is planning discussions with trade and shipping stakeholders to mitigate distress.
- The monsoon's progress is essential for food prices; uneven distribution in the past has affected agricultural areas.
Monetary Policy Stance
- The RBI shifted to a 'neutral' stance, indicating readiness to adjust interest rates in response to economic changes.
- The volatile global and domestic developments highlight the need for agile monetary policy.
