CPI Inflation Falls To 3.61% In India: Implications For RBI And Economic Growth

As per figures released on March 12 by the National Statistics Office (NSO), India’s retail inflation, as measured by the CPI, fell to 3.61% in February 2025. That is a sharp decline from 5.09% in February 2024. Falling food prices and reduced growth in some of the top industries have helped bring down prices. The latest figures have come short of the 3.85% projection of a poll of economists by being below-trend control of price pressures.

Inflation Trends and Comparison

The recent CPI numbers indicate a decline from last month to the corresponding period last year. As of January 2025, retail inflation was 4.26%, while the year-on-year inflation for February 2025 was 3.75%.

Food inflation, the most significant component of retail inflation, eased sharply to 3.75% in Feb 2025 from 6.02% in Jan 2025. This decline was more important than the estimated 4.1% in the CNBC-TV18 poll, showing better price control over core food articles.

Both rural and urban inflation rates also witnessed this moderation. Rural inflation declined to 3.79% from 4.64% in January 2025, whereas urban inflation slowed to 3.32% from 3.87% month-on-month. These figures reveal that rural and urban India is experiencing relief from declining inflationary pressures, though the decline in rural areas was a tad stronger.

Factors Contributing to Declining Inflation

Several significant reasons have helped bring down inflation in February 2025:

1. The decline in Food Prices: A sharp decrease in food inflation, especially of vegetables, cereals, and pulses, has been a major factor in reducing overall CPI inflation. Efficient supply chains and better quality of farm produce have been contributing factors for this dip.
2. Government Policy Measures: To control inflation, the Indian government has put many measures in place, such as subsidizing essential commodities, increasing the distribution of food grains under welfare programs, and maintaining checks on supply chains to stop price increases.
3. Favorable Base Effect: A higher inflation base in February 2024 has contributed to the lower year-on-year inflation figures in 2025.
4. Crude Oil Prices and Global Factors: The decline in global crude oil prices has helped to keep fuel and transport prices, which are major drivers of inflation, in check. Lower import costs and steady energy prices have also helped to keep inflation in check.
5. Monetary Policy and Interest Rates: The RBI has also balanced monetary policy to a great extent, increasing and decreasing interest rates to curb inflation while sustaining support for economic growth. The central bank’s strategy of inflation targeting and management of liquidity has helped keep the CPI continuously decreasing.

Sectoral Analysis of Inflation

A closer look at inflation across different categories paints a picture of the overall economic climate:

• Food and Beverages: This category had a sharp drop in inflation, with grain inflation leveling and vegetable prices reducing. On the other hand, supply constraints continue to exert some pricing pressure on pulses.
• Fuel and Light: The fuel and light sector has stabilized prices, thanks to controlled global oil prices and government measures on fuel subsidies.
• Clothing and Footwear: This industry has experienced a moderate inflation rate, as the increasing cost of production has been countered by regulated demand.
• Housing and Transport: As the housing sector remained at bay, transport inflation softened modestly following the decline in fuel prices.

Implications for the Indian Economy

The easing of retail inflation has multiple implications for the Indian economy:

• Positive Impact on Household Budgets: Softening inflation burdens consumers’ day-to-day expenses less, likely resulting in greater consumption across the board.
• Encouragement for RBI to Maintain Policy Rates: With inflation in the RBI’s comfort zone, the central bank can stick to its present monetary policy stance without taking cutting-edge interest rate hikes.
• Boost to Economic Growth: A stable level of inflation provides a positive atmosphere for investment and economic growth since companies can plan more confidently.
• Potential Impact on Interest Rates: When inflation is kept low, the RBI may even think about rate cuts in the future to further boost economic growth.

Challenges and Risks

Even with the favourable trend, some risks and challenges have the potential to affect inflation over the next few months:

1. Uncertain Global Commodity Prices: Global uncertainties in crude and food prices can challenge the grip of threatened inflation.
2. Weather-Related Disruptions: Drought or unseasonal rain may influence agriculture and food prices.
3. Supply Chain Disruptions: Disturbances in either global or local supply chains have the ability to trigger inflationary forces.
4. Currency Fluctuations: An increase in import prices due to the devaluation of the Indian rupee might exacerbate inflationary pressures.

Final Thoughts

In February 2025, India’s retail inflation dipped to 3.61%, a healthy economic gain. There is tightness, policy interventions have worked, and food prices are in check. The falling trend in inflation benefits monetary stability, consumer expenditure, and economic growth. Weather shocks and volatility in global commodity prices are risks that will be tracked by economists and policymakers. Over the next few months, the Indian economy will continue to be stable as the central bank does not have to change its current monetary policy stance as long as inflation remains at the RBI comfort level.