FY25 retail inflation at 4.6% lowest since FY19

New Delhi Retail inflation, as measured by Consumer Price Index (CPI), was 4.6% in fiscal year 2024-25, the lowest since 2018-19 when it was 3.4%, vindicating the unambiguous pro-growth pivot in India’s monetary policy by theReserve Bank of India.

Even on a quarterly basis – the time frame RBI’s Monetary Policy Committee (MPC) uses to make inflation forecasts – headline inflation print was 3.7% in the quarter ending March 31, the first time it has been below the inflation target of 4% since the quarter ending September 2019.

When read with the price of India’s crude oil basket falling below $70 per barrel and the India Metrological Department (IMD) forecasting an above normal monsoon this year, this could well be the most benign inflation outlook the Indian economy has seen in a long time. To be sure, the ongoing global economic turbulence because of the trade war unleashed by the Trump administration and slowing growth with pent-up demand from the pandemic dissipating, means that policy makers may have to start worrying about growth more than inflation going forward. Low inflation, however, will definitely help rather than hurt in pursuing this cause.

Inflation numbers positively surprised analysts in March with the headline CPI print coming in at 3.3%. A Bloomberg poll of economists projected this number at 3.5%. The latest monthly inflation print is the lowest since August 2019 and the fifth consecutive monthly fall in the headline number. Headline CPI was 6.2% in October 2024. The primary driver of this fall in inflation is a sharp moderation in food inflation. It has fallen from 10.9% to 2.7% between October 2024 and March . Even within food articles, it is vegetables which have driven the inflation turnaround story. Vegetable inflation has fallen from 42% in October 2024 to a disinflation of 7% in March .

Within the food basket, inflation fell in every category on a monthly basis in March except for oil and fats, fruits, spices and sugar. The seemingly high inflation number for oil and fats category (17.1%) is actually because of an adverse base effect as prices contracted by 11.7% in March 2024. For egg, fish and meat, vegetables, pulses and spices, prices were actually in contraction zone. Cereal prices which grew at 5.9% in March compared to 6.1% in February are expected to cool down once the fresh winter crop harvest arrives in the market.

While headline inflation numbers suggest a broad-based cooling in prices, a core versus non-core – the former excludes food and fuel part of the CPI basket and is therefore considered less immune to seasonal fluctuations – classification shows that the latest fall in inflation is despite and not because of a fall in core inflation. Core inflation, according to the Centre for Monitoring Indian Economy (CMIE) database, increased to 4.1% in March from 4% in February. This number has been increasing consistently, albeit slowly for the past one year. To be sure, analysts have attributed the recent rise in core inflation to rising prices of commodities such as gold and silver because of ongoing turbulence in financial markets nudging investors to seek safe haven in metals. Non-core inflation stood at 2.5% in March, the lowest this number has been since September 2021.

The latest inflation numbers vindicate the RBI’s Monetary Policy Committee’s decision to administer back-to-back 25-basis point – one basis point is one hundredth of a percentage point – cuts in the policy rate earlier this month and in February. MPC also changed the monetary policy stance from neutral to accommodative.

MPC, while making this decision was clear that the policy environment had changed from concern around inflation to growth. “ MPC noted that inflation is currently below the target, supported by a sharp fall in food inflation. Moreover, there is a decisive improvement in the inflation outlook. As per projections, there is now a greater confidence of a durable alignment of headline inflation with the target of 4 per cent over a 12-month horizon. On the other hand, impeded by a challenging global environment, growth is still on a recovery path after an underwhelming performance in the first half of 2024-25”. MPC also made a 20-basis point reduction in its GDP growth and inflation forecasts for 2025-26 from 6.7% to 6.5% to 4.2% to 4% respectively.

A moderation in growth could also have an adverse effect on the government’s revenue collections and the government’s spending which could be necessary to mitigate the global growth headwinds and what could potentially be worsening of terms of trade against agriculture if food inflation is consistently below non-food inflation. To be sure, the union government hopes to compensate some of its revenue losses by making a windfall from lower crude oil prices. It raised additional excise duty on petrol and diesel by ₹2 last week.

In another set of data released by the Ministry of Commerce and Industry, the wholesale price index (WPI) grew at 2.1% in March compared to 2.4% in February 2025, suggesting a benign producer price outlook in the economy. WPI has actually fallen marginally even in absolute terms between January and March suggesting that prices are actually flat even on a sequential basis.

“We forecast CPI headline inflation to average 3.7% in FY26, well below RBI target and forecast (of 4%). Food inflation is likely to fall further from April onwards when the new wheat crop hits the market... Core inflation, too, will likely remain soft, led by the recent appreciation of the rupee, imported disinflation from China, softer oil prices, and weaker domestic growth,” Aayushi Chaudhary and Pranjul Bhandari, economists at HSBC said in a note.

“At the wholesale level too, March prices remained benign, with WPI inflation easing at a faster clip than CPI inflation for core categories,” they said.