Opinion Express View on sustained moderation in inflation: A good low

Data released over the past couple of days shows that the inflation rate, both at the wholesale and retail consumer levels, has moderated in April. The wholesale inflation rate — measured by the Wholesale Price Index — grew by just 0.9 per cent last month, which is a 14-month low. But wholesale price inflation hasn’t really been the problematic bit for India in recent years. Over the past 24 months, it has either been negative (which means wholesale prices were falling) or fairly low. The more significant news is on the retail inflation front, which is the rate that policymakers target and consumers worry about. Retail inflation — measured by the Consumer Price Index — came in at 3.2 per cent in April, the lowest level in six years.

To be sure, retail inflation has been moderating lately — it was 3.3 per cent in March. Yet this is the variable that has tested the Reserve Bank of India’s “comfort zone” (of 2 per cent to 6 per cent) in the past few years. Since the end of 2019, there have been several months and even quarters when retail inflation was above 6 per cent and even above 7 per cent — thanks to repeated supply shocks either due to unseasonal weather at home (like rain), the Covid pandemic or disruptions due to the Russia-Ukraine war. The last financial year’s retail inflation was pegged at 4.6 per cent — much closer to the RBI’s target of 4 per cent, and the lowest it has been since 2018-19. Some estimates suggest that India’s inflation is likely to moderate further in the current financial year; analysts at ICICI Securities, for instance, peg FY26 inflation at 3.5 per cent — a sharp fall from the 6 per cent level that sustained right through FY21to FY23. This benign outlook is primarily based on assumptions of a moderation in crude oil prices, which, in turn, brings down costs across sectors, and an “above normal” monsoon, which boosts farm output.

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Given the stress on prices in the recent past, the sustained moderation in the inflation rate since the start of the 2025 calendar year is not just a welcome relief for consumers but also opens up policy space. On the fiscal side, the government has already hiked excise duties on petrol and diesel by Rs 2 per litre in April to shore up an additional Rs 300 billion in revenues as crude oil prices moderated. On the monetary policy front, these readings suggest that consumers can expect the RBI to cut another 50 basis points over the next two policy reviews slated for June and August.