Retail inflation in India fell to 3.16% in April — the lowest level in nearly six years — mainly because food prices went down. According to the National Statistics Office (NSO), this is the sixth month in a row that inflation has decreased. It’s also the third straight month inflation has stayed below the Reserve Bank of India’s (RBI) target range of 4% (plus or minus 2%).
What’s Driving the Drop?
The biggest reason for the fall in inflation is the drop in food prices. Food inflation, which tracks the cost of food items, dropped to 1.78% in April — the lowest in over three years. Just a month ago, it was 2.69%, and in April last year, it was much higher at 8.7%.
- Vegetable prices fell sharply, by nearly 11%.
- Prices of pulses dropped by over 5%, the steepest drop in more than six years.
- Prices of meat and fish also went down for the first time in nearly two years.
- Cereal inflation fell to its lowest in nearly three years, helped by a good harvest.
Experts say this drop in food prices is good news for households and will support consumer spending in the new financial year.
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Rate Cut Hopes
With inflation falling steadily, experts believe the RBI might reduce interest rates in its upcoming policy review in June. A report by CRISIL said a strong harvest and expected good monsoon could keep food prices low this year, making a 0.25% rate cut possible.
However, how much the RBI will cut rates this year will depend on how inflation behaves and how the economy grows.
Rural vs Urban
Inflation fell more sharply in rural areas than in cities:
- Rural inflation dropped to 2.92% in April from 3.25% in March.
- Urban inflation went down slightly to 3.36% from 3.43%.
- Food inflation in villages was 1.85%, while in cities, it was 1.64%.
This fall could help boost demand in rural India.
Not All Prices Are Falling
Some categories saw prices increase:
- Fuel and electricity prices rose by 2.92% in April, up from 1.48% in March.
- Core inflation — which does not include food and fuel — stayed firm at 4.1%, the highest since November 2023. This shows that people are still spending steadily.
- If we exclude vegetables and pulses, inflation actually rose to 4.4%, the highest in 18 months.
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Will the RBI Cut Rates?
Some economists are cautious. They say the lower inflation is mainly due to cheaper vegetables, which only make up 6% of the overall inflation index. Without that drop, inflation is still close to the RBI’s 4% target. So, the central bank may wait until August to make a final decision, after seeing how the monsoon and other factors play out. Inflation is expected to stay low in May and June because of the “base effect” — prices were high last year, making current numbers look better in comparison.
