India’s retail inflation rate eased to a seven-month low of 3.61% in February 2025, driven by a significant moderation in food inflation, particularly in perishable goods and protein-based food items. Food inflation fell below 4% for the first time in nearly two years, and its lowest in 21 months. The decline in vegetable prices and pulses prices contributed to the fall in food inflation, with vegetable prices deflating by 1.1% year-on-year.
However, core inflation, which excludes food and fuel, surged to its highest level in seven months, driven by the sharp increase in gold prices and the depreciation of the Indian rupee.
The moderation in inflation has strengthened expectations of a back-to-back rate cut in the upcoming April meeting of the Reserve Bank of India (RBI), with economists predicting another 25 basis points (bps) rate cut. The RBI had implemented a 25 bps rate cut in February, reducing the policy rate from 6.5% to 6.25%.
The long-term inflation projections suggest that inflation is expected to moderate to 3.8% by Q3 FY2026, with the fiscal year closing with a policy rate of 5.75%. However, challenges remain in monetary policy transmission.
The key highlights are:
* Retail inflation rate at a 7-month low of 3.61%
* Food inflation at a 21-month low of 3.75%
* Vegetable and pulses prices declining
* Fruits and edible oil prices increasing
* Core inflation at a 7-month high, driven by gold prices
* Repo rate cut in February from 6.5% to 6.25%
* Expected 25 bps rate cut in April 2025 meeting
* FY26 inflation forecast at 4.2%