 "Economic Survey 2025: Inflation stays high as food prices defy global dip")
The Economic Survey 2024-25, released on January 31, indicates that food inflation, as tracked by the Consumer Food Price Index (CFPI), rose from 7.5 per cent in FY24 to 8.4 per cent in FY25 (April-December). This surge was primarily driven by a handful of food items, particularly vegetables and pulses.
Retail inflation in India, measured by the Consumer Price Index (CPI), averaged 5.4 per cent during FY25 (April-December). Although this remained within the Reserve Bank of India’s (RBI) upper tolerance level, it exceeded the central bank’s comfort zone of 4 per cent. Food inflation, in particular, surpassed 8 per cent at several points, largely due to supply disruptions affecting key commodities such as onions, tomatoes, and pulses.
Extreme weather events significantly impacted agricultural output, the survey said. Tomato prices soared by 37 per cent during peak summer due to heatwaves, while onion prices remained 20 per cent above their five-year average following unseasonal rainfall in major growing regions. The survey also noted a 15 per cent increase in crop area damage over the past three years due to erratic weather, further intensifying food price pressures.
While core inflation (excluding food and fuel) eased to 4.1 per cent, service-related inflation in housing, healthcare, and education continued to rise. Housing rents, for instance, increased by 12 per cent, while healthcare expenses rose by 6.5 per cent. The survey attributed these rising costs to strong urban demand, wage growth, and supply chain disruptions affecting essential medical goods.
Vegetables and pulses, which together account for 8.42 per cent of the CPI basket, contributed 32.3 per cent to overall inflation in FY25 (April-December). Without these items, the average food inflation rate would have been 4.3 per cent—4.1 percentage points lower than the reported figure. Similarly, excluding vegetables and pulses from the calculation, the overall inflation rate would have been 3.2 per cent, 1.7 percentage points below the actual headline inflation. ALSO READ: Union Budget 2025: What Economic Survey says about the agriculture sector
Global inflation trends
Globally, inflation has eased from post-pandemic peaks. The survey highlighted that inflation in the US declined to 3.4 per cent by the end of 2024, down from 6.5 per cent in 2023, while the Eurozone’s inflation rate fell to 2.9 per cent due to lower energy prices and weak demand.
Despite this moderation, global risks persist. The US Federal Reserve’s cautious approach to rate cuts, the European Union’s carbon border tax affecting trade costs, and China’s deflationary concerns have added complexity to the external economic environment. For India, a decline in global commodity prices—especially crude oil, which averaged $82 per barrel in 2024 compared to $95 in 2023—has provided some relief. However, sectors reliant on imports continue to face cost challenges due to a weaker rupee, which depreciated by 4.5 per cent against the US dollar over the year.
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RBI policies to manage inflationary pressures
To keep inflation in check, the RBI maintained a steady repo rate of 6.5 per cent throughout most of 2024, aiming to anchor inflation expectations. The government also intervened with supply-side measures, such as releasing 5 lakh tonnes of wheat and rice from buffer stocks to stabilise staple food prices.
Additionally, investments in cold storage and logistics infrastructure, along with a Rs 10,000 crore incentive for the food processing sector, have been introduced to strengthen long-term food supply chains. Meanwhile, discussions on revising minimum support prices (MSP) for select crops are ongoing, though the survey cautioned that such measures need to be implemented carefully to avoid undue fiscal strain. ALSO READ: India needs 7.8 mn non-farm jobs yearly to sustain growth: Economic Survey
Outlook for inflation in FY26
According to the Economic Survey, India’s inflation trajectory presents a mixed picture. While overall CPI inflation is expected to ease to 4.5 per cent in FY26, food prices remain a key variable due to climate-related uncertainties and global supply chain disruptions. The survey suggested that if global oil prices remain stable and domestic food supply chains strengthen, inflationary pressures could further subside.