Retail Inflation Eases to 5-Month Low at 4.31% in January as Food Prices Drops

India's retail inflation, based on the consumer price index (CPI), dipped to a five-month low of 4.31% in January, shows data released by the government on Wednesday. This ease in inflation rate is primarily driven by lower food prices.

The inflation rate dropped significantly from 5.22% in December last year and is the lowest year-on-year inflation since August 2024. Inflation reached a 14-month high at 6.21% in October same year.

Rural inflation eased to 4.64% against 5.76% in December and urban inflation cooled at 3.87% compared to 4.58 the previous month.

Food inflation, which constitutes almost half of the CPI basket, stood at 6.02% during the period against 8.39% in the month earlier.

"Looking ahead, rabi sowing has been as per expectations and vegetable prices have continued to drop further in Feb’25, which should help keep the headline inflation in check for the coming two months," says Suman Chowdhury, chief economics at Acuité Ratings & Research.

Inflation and Growth

India's real gross domestic product (GDP) is predicted to grow at a four-year low of 6.4% in the current financial year, primarily due to weak industrial and investment growth.

However, burdened by inflation, the Reserve Bank of India (RBI) maintained its repo rate at 6.5% for almost two years before cutting 25 basis points last week to boost the country's slowing economy.

The central bank has been asked to ensure retail inflation at 4% with a margin of 2% on either side.

The finance ministry highlighted in its monthly economic review for November last year that the combination of monetary policy stance and macroprudential measures by the RBI may have contributed to the demand slowdown in the first quarter of the FY25.

RBI’s Monetary Policy Committee (MPC) last week asserted that the inflation has moderated, supported by a favourable outlook on food and is expected to decline in FY26, offering further relief to Indian households.

CPI inflation for FY25 has been forecast at 4.8%, assuming a normal monsoon. For the FY26, the RBI projected inflation at 4.2%.

It will be interesting to see if the easing inflation rate would create more room for the central bank to reduce the benchmark interest further in April.