India’s wholesale inflation eases to 14-month low in May, driven by slowing demand

India’s wholesale inflation, as measured by the Wholesale Price Index (WPI), dropped to a 14-month low of 0.39 per cent in May 2025, down from 0.85 per cent in April, according to data released by the Ministry of Commerce and Industry on June 16.

This marks the third consecutive month of declining wholesale inflation, primarily driven by slowing demand and moderating food prices, with prices of key kitchen staples such as vegetables, pulses, and potatoes falling sharply.

Food prices lead the decline

The significant deceleration in food inflation was the major factor contributing to the decline in overall WPI. Food inflation fell to 1.72 per cent in May, down from 2.55 per cent in April. This was largely due to a sharp decline in vegetable prices, which contracted by 21.62 per cent compared to 18.26 per cent in the previous month.

Other food items such as onions and potatoes also saw considerable price reductions, with onion inflation easing to 14.41 per cent in May from 0.20 per cent in April and potato inflation plunging by 29.42 per cent. This is indicative of easing demand pressures, rather than supply shortages or disruptions.

Notably, protein-rich food items like eggs, meat, and fish saw a price decline of 1.01 per cent, marking the second consecutive month of deflation in this category. However, the prices of fruits (up 10.17 per cent) and milk (up 2.66 per cent) continued to rise, pointing to mixed trends within the broader food category.

Fuel and power prices continue to fall

The fuel and power segment, which has a significant impact on inflation, also saw a continued fall in prices. Fuel and power inflation contracted by 2.27 per cent in May, slightly worse than the 2.18 per cent drop in April.

The decline was largely driven by lower mineral oil prices, with petrol prices falling by 8.5 per cent and high-speed diesel prices by 5.61 per cent. However, the price of cooking gas rose by 0.25 per cent, reflecting volatility in global energy markets.

Manufactured products show slower price growth

Inflation in manufactured products, which makes up the largest portion of the WPI basket, slowed to 2.04 per cent in May from 2.62 per cent in April. The deceleration in this category is further evidence of softening demand across the economy.

Key categories such as food products, basic metals, rubber and plastics, and chemical products saw price reductions, while certain sectors, including pharmaceuticals, electronics, and textiles, recorded price increases.

Declining inflation reflects weak demand

The overall trend of falling wholesale inflation can be attributed to weakening demand across key sectors, rather than any major supply disruptions or shortages. This is evident from the broader cooling seen in both food and non-food items.

While inflation in primary articles declined by 2.02 per cent year-on-year, the deceleration in prices was not driven by any major disruptions in supply chains but rather by weaker demand pressures.

This cooling in wholesale inflation follows the same trend seen in retail inflation, which eased to a 75-month low of 2.82 per cent in May, largely due to the decline in food prices. With inflation remaining subdued, the Reserve Bank of India (RBI) has room to continue its accommodative monetary policy.

In fact, the RBI’s Monetary Policy Committee (MPC) recently cut the repo rate by 50 basis points to 5.5 per cent, signalling that it expects the low inflation environment to persist.

RBI’s outlook and future expectations

The cooling of both wholesale and retail inflation suggests that the RBI could take further steps to ease monetary policy in the second half of 2025, supporting economic growth while keeping inflation under control.

The central bank has already lowered its inflation forecast for FY26 to 3.7 per cent, from an earlier projection of 4 per cent, in light of the ongoing disinflationary trends.

Economists also point out that as food inflation continues to ease, the country may see further benefits from a favourable monsoon season and improved agricultural output. However, risks remain in the form of global volatility and unpredictable weather patterns, which could affect inflation trends in the coming months.

The latest WPI data underscores a broader trend of falling inflation driven by slowing demand rather than supply-side factors. With food prices and fuel costs continuing their decline, India’s wholesale inflation outlook remains subdued, providing the RBI with the flexibility to maintain its policy stance and support economic recovery in the months ahead.