Is India Headed Towards Record-Low Retail Inflation? SBI Says It May Drop to 2% by July

India’s retail inflation could fall further to 2% or even lower by July 2025, according to SBI Research, after dropping to a six-year low of 2.82% in May. The moderation was largely driven by softening food prices, especially vegetables and pulses, which saw double-digit declines.

What’s Driving the Inflation Dip?

As per the SBI report, vegetable prices fell 13.7% while pulses dropped by 8.2%, contributing significantly to the fall in the Consumer Price Index (CPI). Additional easing was seen in the prices of spices, meat, and fish. However, higher prices of fruits, personal care, and miscellaneous items somewhat offset these gains.

Despite the fall in headline inflation, core inflation remained sticky, rising to 4.2%—its second-highest level in the last 19 months.

Will the Trend Continue?

SBI Research expects inflation to remain below 4% until Q3 FY26, before slightly rising in the final quarter of the current fiscal. The forecast for average CPI inflation in FY26 now stands between 3.3–3.5%, revised downward from RBI’s earlier estimate of 4%.

This benign outlook may offer the Reserve Bank of India (RBI) greater room to maintain an accommodative stance for boosting capital formation and durable growth.

How Are States Performing?

The number of states and UTs with inflation above 4% dropped from 32 in October 2024 to just 6 in May 2025, reflecting broad-based relief. Goa was the only outlier, where inflation actually rose by 2.09% during the period.

What About RBI’s Rate Outlook?

After holding its benchmark repo rate at 6.5% for eleven straight meetings, the RBI cut rates in February 2025 for the first time in five years. SBI Research anticipates a pause in further rate cuts at least until December 2025, though much depends on future data.

The central bank’s inflation forecast for 2025-26 has also been lowered from 4% to 3.7%, reinforcing confidence in the country’s macroeconomic stability.

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