India’s retail inflation slowed to a five-month low in January, driven by a slowdown in food price inflation. The annual retail inflation rate in January stood at 4.31%, below economists’ prediction of 4.6% and a decrease from 5.22% in December.Â
“There is decline of 91 basis points in headline inflation of January, 2025 in comparison to December 2024. It is the lowest year-on-year inflation after August, 2024,” said Ministry of Statistics & Programme Implementation on Tuesday. In August 2024, the retail inflation rate was recorded at 3.65%.
Food inflation declined to 6.02% from 8.39% in December. This reduction in inflation raises the possibility of further monetary policy easing by the Reserve Bank of India (RBI), which had reduced its key policy rate in February for the first time in nearly five years to stimulate the economy. The government also introduced significant income tax cuts in the February 1 budget to boost consumption.
In January, vegetable prices rose 11.35% year-on-year, compared to a 26.60% increase in December. Prices of cereals increased by 6.24% against a 6.50% rise in December, while pulses saw a gain of 2.59% compared to 3.80%. Prices of vegetables and pulses fell from the previous month. Winter harvests have contributed to moderating food prices, although warmer-than-usual temperatures in March could threaten crops like wheat.
Core inflation, excluding volatile food and energy items and considered a better measure of domestic demand, increased to 3.7% in January from 3.6% in December, according to two economists.
RBI Governor Sanjay Malhotra stated last week that the central bank remains vigilant regarding inflationary pressures and will monitor the impact of rupee depreciation on local prices. A 5% depreciation in the rupee affects domestic inflation by 30 to 35 basis points, he noted. Concerns over a potential trade war led the rupee to hit a record low of 87.95 against the U.S. dollar in February, heightening fears of increased inflation on imported goods.
The RBI anticipates inflation to average 4.8% in the current financial year ending March 31 and expects it to decrease to 4.2% the following year. The central bank aims for an inflation target of 4% with a tolerance band of 2 percentage points on either side.