Retail, Wholesale Inflation Hit Multi-Month Lows — Time for the RBI to Cut Rates, and for Government to Come Clean on Fuel Prices
India’s inflation story just took a sharp turn for the better. In April 2025, the country witnessed a significant drop in both retail and wholesale inflation — hitting a 69-month and 13-month low, respectively. For consumers and policymakers alike, the new numbers bring a sense of relief and validation.
While the public feels the impact through cheaper vegetables and pulses, economists see the data as evidence that the Reserve Bank of India’s (RBI) monetary tightening in 2023 and early 2024 worked — and that recent back-to-back interest rate cuts may have been well-timed. But beneath the positive headline, important caveats remain — and the government now faces fresh pressure to act, especially on fuel prices.
What Drove the Fall in Inflation?
Retail inflation eased sharply, helped largely by falling food prices. Vegetable prices were down by almost 11%, while pulses saw a decline of 5.2%. At the wholesale level, the trend was even starker: vegetables contracted by 18.26% in April, aided by a strong base effect.
But the numbers need to be put in context. A year ago, between February and April 2024, vegetable inflation was hovering between 27% and 30%. So, while prices are lower now, it’s partly because they had risen so sharply last year — a statistical effect known as the “high base effect.”
Nonetheless, efforts by the government — such as strengthening buffer stocks of essential food items, releasing them in the open market, and easing imports during supply crunches — seem to have played a crucial role in keeping inflation in check. These policy interventions have had a real impact on price stability.
Liquidity Crunch Played a Role
Another factor that may have helped temper inflation is the liquidity squeeze in the banking sector during the first few months of 2025. Lower liquidity means banks have less money to lend. That, in turn, slows down spending and business activity, pulling inflation downward. While this helps inflation statistics, it’s not good for the broader economy.
RBI’s Next Move: A Third Rate Cut?
The Monetary Policy Committee of the RBI has already cut rates twice in the last three months. The latest inflation data adds weight to arguments for a third cut in June. Lower interest rates can support growth — especially if inflation remains within manageable limits.
However, the RBI won’t act in isolation. Later this month, India’s GDP numbers for Q1 2025 will be released. If those figures show economic momentum is weak, the RBI may feel compelled to lower rates again — possibly as early as the next policy meeting.
The Fuel Price Conundrum
One of the more puzzling aspects of the current economic scenario is fuel pricing. Crude oil inflation in the Wholesale Price Index (WPI) has fallen to a 22-month low. Logically, this should translate into lower petrol and diesel prices. But fuel prices in India have remained virtually unchanged for nearly three years.
This is despite a 42% drop in global crude oil prices during the same period.
The government had once proudly introduced the “dynamic fuel pricing” system, under which prices are meant to be revised daily based on international market trends. Yet, that system appears to have quietly collapsed. If oil marketing companies refuse to cut prices now — even with falling inflation and low crude — the government should officially scrap the so-called dynamic pricing policy.
Otherwise, it risks losing public trust and reinforcing perceptions that fuel pricing is being used for political convenience.
Looking Ahead: Uncertainties Remain
While falling inflation is welcome, it's far from a guarantee of economic stability. Much depends on how the monsoon performs this year. A poor monsoon could push up food prices again and reverse recent gains.
Trade tensions, too, remain a wildcard. Ongoing global tariff uncertainties — especially retaliatory threats involving India — could affect imports and overall price stability in the second half of the year.
Final Word
April’s inflation numbers are a much-needed breather — both for ordinary citizens struggling with the cost of living and for policymakers trying to balance growth with price stability. But now is the time to act with clarity.
The RBI should consider another rate cut, if GDP numbers support it. The government must be transparent about fuel pricing and either adjust rates or explain its new approach. Falling inflation gives policymakers room to act boldly — but without honest communication and forward planning, it could be a missed opportunity.
