India’s retail inflation may descend towards 2% or below by July: SBI Research

Indian inflation rate at a six-year low, expected to drop further to 2% by July, providing room for economic growth.
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Consumer price inflation in India, which eased to an over six-year low in May (at 2.82 per cent) is seen declining further towards 2 per cent, perhaps even lower, by July, according to a report from SBI Research.

Consumer Price Index-based retail inflation moderated to 2.82 per cent in May, much below the consensus estimates hitting a 75-month low, driven chiefly by softening food items, particularly vegetables and pulses which declined by 13.7 per cent and 8.2 per cent respectively.

“The positive development on the headline front gets a tad masked, though with the sticky nature of core inflation which edged up to 4.2 per cent, second-highest in the last 19 months. “SBI Research expects CPI Inflation to average 3.3-3.5 per cent in 2025-26, in turn allowing the central bank RBI some elbow room to navigate the “evolving landscape with forbearance.” Deciphering the state-wise inflation trends, the number of states/UTs inflation above 4 per cent has declined to 6 in May 2025, as against 32 States/UTs that had inflation above 4 per cent as in October 2024. During October 2024 to May 2025, overall all India inflation declined by 3.38 per cent, except Goa, where inflation increased by 2.09 per cent.

“We expect CPI inflation to remain below 4 per cent till Q3 FY26 while it may show some increase in the last quarter of the current fiscal. The benign inflationary expectations justify RBI’s quest to support the momentum in capital formation for more durable growth,” SBI Research said. The inflation rate is within the Reserve Bank of India’s (RBI) manageable range of 2-6 per cent. Retail inflation last breached the Reserve Bank of India’s 6 per cent upper tolerance level in October 2024. Since then, it has been in the 2-6 per cent range, which the RBI considers manageable. Food prices were a concern for Indian policymakers, who wished to sustain retail inflation around 4 per cent. Inflation has been a concern for many countries, including advanced economies, but India has largely managed to steer its inflation trajectory well.

The RBI held its benchmark repo rate steady at 6.5 per cent for the eleventh consecutive time, before cutting it for the first time in about five years in February 2025. Analysts expect inflation to remain under control, allowing the RBI to focus on supporting economic growth. The recent 50 basis points repo cut was quite an indication. The inflation outlook for the year 2025-26 has been revised downwards from RBI’s earlier forecast of 4 per cent to 3.7 per cent. SBI Research expects a pause in rate action here onwards till the December 2025 policy, though a lot will depend upon incoming data.

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Published on June 13, 2025