As the Reserve Bank of India (RBI) is set to announce its decisions after the 55th meeting of the Monetary Policy Committee today, Bank of Baroda (BoB) said consumer price index (CPI) inflation could come in at 2.7% in May, sharply lower than 3.16% registered in April.
This follows the BoB Essential Commodities Index (BoB ECI) entering the deflation territory in May, the sharpest fall noticed since January 2019.
“The broader comfort will be provided by food inflation. Even globally, food and energy prices remain in favour. Q1FY26 also has the advantage of a favourable base for inflation print. Thus, inflationary pressure is still residing on the downside,” BoB said in a note.
It noted that the volatile TOP (tomato, onion, potato) prices are still holding ground supported by better production. Arrival statistics for TOP cumulatively have risen by 26.4% in May 2025 compared to (-)16.1% in May 2024, on YoY basis.
According to the note, the gap between retail and wholesale prices of tomato and potato is still higher, which suggests that some pass through of lower wholesale prices will be visible in retail print in the near term. “Thus, supply dynamics remains favourable for a lower inflation print in the near term. A moderation in gold price in May 2025 would also largely cap core inflation. In May’25, international gold prices have softened by 2.9%, on MoM basis compared to the 7.9% increase seen in Apr’25.”
The MPC at its last meeting had projected CPI inflation for the current fiscal year at 4%, with quarterly estimates at 3.6% in Q1, 3.9% in Q2, 3.8% in Q3, and 4.4% in Q4.
In its 54th meeting held in April, the MPC had unanimously decided to reduce the policy rate by 25 basis points, bringing it down to 6%. This was the second consecutive rate cut, taking the total reduction in the current monetary easing cycle to 50 basis points. Markets expect the RBI to announce another a 25 basis points rate cut today.
BOB , however, added that the fine print of food inflation needs vigilance. “World Bank data has shown that some upticks in metal prices are visible, especially aluminum, copper and zinc, primarily on account of frontloading of demand due to tariff limbo. Further, even though domestic demand conditions have largely been supportive, a better monsoon, higher MSP augers well. Hence some pressure on core inflation cannot be ruled out.”
While core inflation has inched up in recent months and came in at 18-month high of 4.21% in April, an article in the recent RBI bulletin highlighted that highly elevated gold prices is the reason behind the trend. High gold inflation (over 30% in 3 months to April) has kept inflation in “personal care and effects,” a key constituent of core inflation, elevated.
Source: The Financial Express
