India’s Inflation Dips Below 3%: Decoding CPI, Food Prices & RBI Policy

Breaking Down India’s Inflation Drop
CPI inflation plummeted to 3.16% in April 2025 and likely fell below 3% in May – the first sub-3% reading since early 2019. This dip was fueled by:
Sharp decline in cereal/pulse prices (Bank of Baroda’s Essential Commodities Index fell 0.6% YoY).
Mixed vegetable trends: Though potatoes (+3%) and tomatoes (+10%) rose monthly, overall food inflation cooled.
RBI’s revised forecast: Cut FY26 inflation projection by 30 bps to 3.7%.

Key Inflation Concepts Simplified
CPI (Consumer Price Index)
Measures retail price changes for a 299-item basket (2012 base year).
Weightage: Food (45%), Housing (10%), Fuel (7%), Services (28%).
Published by Ministry of Statistics & Programme Implementation (MoSPI).
Core Inflation
Excludes volatile food & fuel prices.
Current trend: Rose to 4.2% in May (vs. 3.1% in 2024), signaling rising demand.
WPI vs. CPI
WPI (Wholesale Price Index): Tracks factory-gate prices (published by DPIIT).
CPI: Reflects actual consumer expenses (more policy-relevant).

Why This Matters for India
Policy Impact: Low inflation allows RBI to cut interest rates, boosting growth.
Food Inflation Risks: Vegetable price declines are slowing (6-month cooling trend weakening).
Long-term Concerns: Sustained low food prices hurt farmer incomes, while high core inflation strains urban households.

Government & RBI Measures to Control Inflation
Monetary Tools: RBI uses repo rate hikes to curb demand.
Fiscal Measures:
Buffer stocks for cereals/pulses.
Import duty cuts on edible oils.
PMFBY crop insurance to stabilize farm output.
Supply Chain Fixes: Operation Greens for perishables, e-NAM for market access.
 

Sample Q&A for Exam Prep
Q (Prelims): Which body publishes India’s CPI inflation data?
A: Ministry of Statistics & Programme Implementation (MoSPI).
Q (Mains GS-III): Explain how falling CPI inflation impacts RBI’s monetary policy.
A: Low inflation allows RBI to cut repo rates, reducing borrowing costs for businesses/consumers and stimulating economic growth.
Q (Prelims): What weightage does food hold in India’s CPI basket?
A: 45% (Cereals alone account for 9.67%).
Q (Mains GS-III): Why is core inflation rising despite falling headline CPI?
A: Core inflation excludes volatile food/fuel, reflecting strong demand in services/industrial sectors (e.g., healthcare, education, housing).
Q (Prelims): Which index hit negative growth for the first time since 2019 in May 2025?
A: Bank of Baroda’s Essential Commodities Index (-0.6% YoY).