India's retail inflation eases to 7-month low of 3.61% in February

Industrial output picks up at 5 per cent in January 2025 from 3.2 per cent in December

India’s retail inflation eased to a seven-month low of 3.61 per cent in February 2025, down from 4.31 per cent in January,  as food price pressures softened, according to government data released on Wednesday. This brings inflation below the Reserve Bank of India’s (RBI) medium-term target of 4 per cent for the first time since August 2024.

 

The Consumer Price Index (CPI)-based inflation remained well within the RBI’s tolerance band of 2-6 per cent. A Reuters poll of 45 economists had forecast February’s inflation at 3.98 per cent, but the actual figure came in lower than expected.

 

Meanwhile, India’s industrial output growth picked up to 5 per cent year-on-year in January 2025, compared to 3.2 per cent in December 2024.

 

 

Food inflation slows

Food prices, which constitute nearly half of the CPI basket, played a key role in bringing down overall inflation. Food inflation declined to 3.75 per cent in February, a sharp fall from 5.97 per cent in January, driven by lower prices in vegetables, eggs, meat, fish, pulses, and dairy products.

 

Urban vs rural inflation

 

Rural food inflation stood at 4.06 per cent, while urban food inflation was 3.20 per cent. Overall rural inflation dropped to 3.79 per cent in February from 4.59 per cent in January. Urban inflation also saw a decline from 3.87 per cent to 3.32 per cent.

 

This downward trend in inflation could ease consumer cost pressures and provide relief to households, particularly ahead of the summer season when food prices tend to fluctuate.

 

Industrial growth strengthens in January

 

Alongside easing inflation, India’s industrial output, measured by the Index of Industrial Production (IIP), showed a stronger-than-expected performance in January 2025, expanding by 5 per cent year-on-year, compared to 3.2 per cent in December 2024. The growth was driven by robust performances in the manufacturing and mining sectors.

 

Sector-wise industrial performance:

• Mining output increased by 4.4 per cent
• Manufacturing sector grew by 5.5 per cent
• Electricity generation saw a more modest rise of 2.4 per cent

 

Inflation forecast

 

The RBI had projected CPI inflation for FY 2024-25 at 4.8 per cent, with the January-March quarter (Q4FY25) estimate at 4.4 per cent. However, with inflation falling below 4 per cent, analysts suggest that the central bank may consider further easing its monetary stance to support economic growth.

 

The RBI cut the repo rate by 25 basis points to 6.25 per cent in an effort to support economic growth during its last MPC meet. The RBI’s next bi-monthly policy meeting in April 2025 will be closely watched for any repo rate cuts, which could boost borrowing and investment. However, the central bank will also assess global crude oil prices, geopolitical risks, and core inflation trends before making a decision.

 

For FY26, inflation is projected to be 4.2 per cent, with the following quarterly estimates:

 

Q1FY26: 4.5 per cent (down from 4.6 per cent)

Q2FY26: 4 per cent (unchanged)

Q3FY26: 3.8 per cent

Q4FY26: 4.2 per cent