NEW DELHI: In a significant economic development, retail inflation in India has fallen to its lowest level in over five years, primarily driven by a sharp decline in food prices. This easing of inflation is likely to influence the Reserve Bank of India (RBI) to consider cutting interest rates in the coming months, a move aimed at bolstering economic growth amidst ongoing global uncertainties.

Data released by the National Statistical Office (NSO) on Tuesday revealed that retail inflation, as measured by the Consumer Price Index (CPI), rose by an annual rate of just 3.3% in March. This figure marks a decrease from the previous months rate of 3.6% and is significantly lower than the 4.9% recorded in March of the previous year. The drop in inflation is further reflected in the food price index, which slowed to 2.7% in March, down from 3.8% in February and a steep decline from the 8.5% noted in March of last year.

The inflation data also highlighted a contrasting trend between rural and urban areas; rural inflation stood at 3.3% in February, while urban inflation was slightly higher at 3.4%. The overall decline in headline inflation from February to March was 27 basis points, marking the lowest year-on-year inflation rate since August 2019. More notably, food inflation saw a drastic decline of 106 basis points compared to the previous month, with Marchs food inflation being the lowest recorded since November 2021.

The significant decrease in both headline and food inflation in March 2025 can be largely attributed to falling prices in various essential commodities, including vegetables, eggs, pulses and products, meat and fish, cereals and products, as well as dairy products. These reductions have helped create a more favorable environment for consumer spending, which is crucial for economic stability.

Soumya Kanti Ghosh, the group chief economic adviser at the State Bank of India (SBI), commented on the implications of this low inflation. He anticipates that with inflation levels being at multi-year lows and expectations remaining benign for the future, the RBI may implement rate cuts of approximately 50 basis points in both June and August. Ghosh further speculated that cumulative rate cuts could exceed 100 basis points as the growth environment becomes increasingly uncertain.

Experts are optimistic about the trajectory of retail inflation, projecting it to remain at manageable levels largely due to the easing of food inflation. However, they also caution that the potential impact of geopolitical tensions and weather-related events should not be overlooked. Rajani Sinha, the chief economist at CareEdge rating agency, expressed similar sentiments, stating, Going ahead, we project CPI inflation to stay at comfortable levels supported by moderating food inflation. For FY26, we expect CPI inflation to average 4.2%.

In a related development, separate data indicated that wholesale price inflation also moderated, reaching a six-month low of 2.1% in March, down from 2.4% in February. This decline, attributed to lower food prices, offers additional relief from persistent price pressures that have strained consumers and businesses alike.