Softer vegetable prices, especially that of kitchen staples, helped ease retail inflation to a five-month low of 4.31% in January 2025 and prices are expected to fall further in coming months. While January’s numbers back the decision of the Monetary Policy Committee to cut rates, analysts however caution that going forward the depreciating rupee may also have an impact on the monetary policy.
According to official data released on Wednesday, consumer price index-based inflation eased to 4.31% in January from 5.22% in December. It was at 5.1% in January 2024. Consumer food price inflation also cooled to 6.02% in January this year from 8.39% in December 2024.
Inflation in the food and beverages basket also eased to 5.68% in January from 7.69% in the previous month. Vegetable inflation remained high but eased to 11.35% in January from 26.56% in December.
With prices seen to continue moderating in February, retail inflation is seen to expected to ease further. ICRA has pegged CPI inflation in February at 4%. India Ratings and Research also forecast CPI inflation in February and March 2025 to be in the 3.9%-4% range.
“As per the early data for February 2025 (until February 10, 2025), the average retail prices of 14 of the 22 essential commodities (barring wheat, sugar, and most edible oils) softened on a sequential basis in the month. The considerable moderation in vegetable prices is likely to augur well for the year-on-year food and beverages inflation print for the month, which is expected to ease to a six-month low of about 5.2% in February 2025,” said Aditi Nayar, Chief Economist and Head of Research and Outreach, ICRA.
Suman Chowdhury, Executive Director & Chief Economist, Acuité Ratings & Research noted that the steep correction in tomato, onion, and potato prices—key CPIF components—has contributed to this downward trajectory in food inflation. “Additionally, a decline in pulses inflation, supported by tariff-free imports and strong harvest expectations, has also helped ease the food price pressures,” he said. Looking ahead, rabi sowing has been as per expectations and vegetable prices have continued to drop further in February 2025, which should help keep the headline inflation in check for the coming two months, he said.
Analysts have however warned that edible oil prices, with retail inflation in the commodity rising to 15.64% in January could pose a challenge in coming months along with higher imported inflation due to the rupee fall.
Core inflation saw a marginal uptick to 3.7% in January from 3.6% in the previous month.
The RBI has pegged retail inflation in the fourth quarter of the fiscal at 4.4% and expects it to ease to 4.5% in the first quarter of FY26. The next meeting of the RBI’s MPC will be held in April.
Paras Jasrai, Senior Analyst, India Ratings noted that the future policy easing would be data dependent. “The monetary policy action in April 2025 monetary policy is dependent on currency movement and liquidity in the system,” he said.
Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank expects the inflation trajectory to remain benign in the months ahead to provide room for another 25 basis points of rate cut by the MPC. “However, the pace of INR depreciation will need to be closely watched for spillovers on domestic inflation,” she noted.