India’s Record Low Core CPI Overshadowed by Surging Food Prices: Can Monsoons Provide Relief?

Core CPI at Historic Low

According to recent government data, India's retail inflation measured by the Consumer Price Index (CPI), declined to 4.75% in May from 4.83% in April, marking the lowest level in a year, according to recent government data. 

Notably, the core CPI, which excludes volatile food and fuel items and comprises nearly 50% of the CPI basket, continued its downward trend, recording a historic low of 3.12% year-on-year (YoY) in May 2024.

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Persistent Food Inflation

Despite the overall CPI cooling, food inflation remains a significant concern. Food prices, which make up almost 40% of the CPI basket, surged by 8.7% YoY in May. This marks the seventh consecutive month where food inflation has stayed above 8%, primarily driven by last year's subpar monsoon rains.

The spike in food prices, especially vegetables and fruits, is attributed to climate-related disruptions that have led to a supply shortfall. Sequential food items, which heavily influence 32% of the CPI basket, are experiencing substantial upward momentum.

Weather Woes and Supply Strain

In a recent monetary policy announcement, Reserve Bank of India (RBI) Governor Shaktikanta Dasstated that the exceptionally hot summer and low reservoir levels could further stress the summer crops, particularly vegetables and fruits. 

According to Das, the arrivals of pulses and vegetables from the rabi harvest need close monitoring.Das emphasized that the uncertainties related to the food price outlook require close monitoring, especially due to their potential impact on headline inflation. Domestic brokerages have indicated that the delay in the US rate cut cycle and RBI's vigilance on food inflation may push the rate cycle in India to Q4FY25.

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In May, six out of twelve food categories experienced inflation above 6%, with notable increases in vegetables (27.3% YoY), pulses (17.1%), cereals (8.7%), and eggs (7.6%). Oils, fats, and fruits also saw considerable price pressures.

Monsoons: A Ray of Hope?

Food prices continue to rise significantly, with notable monthly increases in onions and tomatoes. Heatwaves in April and May, combined with early rains in some states, have adversely affected the tomato harvest. Similarly, onion prices have been hit by supply-demand imbalances. Pulses like gram and tur are also experiencing price increases, potentially straining the buffer stock of pulses.


The trajectory of headline CPI largely depends on the spatial distribution of the Southwest monsoon. FMCG companies are adopting a volume-led approach by cutting prices, which may impact core inflation. The anticipated relief from the monsoons might mitigate some of the inflationary pressures, but the extent of this relief remains uncertain amidst global food price stickiness and climatic unpredictability.

 Also Read: Fed Holds Interest Rates Steady Amid Inflation Concerns