India’s Retail Inflation Falls to 7-Month Low at 3.61%
India's retail inflation drops to 3.61% in Feb, driven by lower food prices; industrial output growth rises to 5%, boosting economic outlook
New Delhi: With the significant decline in the prices of vegetables and protein-rich items, headline retail inflation fell to seven-months low of 3.61 per cent in February, staying well within the Reserve Bank of India (RBI’s) comfort zone. The fall of prices, however, will encourage the RBI for a second reduction in interest rate next month to boost the economic growth in the country. Besides, India’s industrial output growth also accelerated to 5 per cent in January 2025, driven by a rebound in manufacturing activity, the two separate official data showed on Wednesday.
As far as inflation is concerned, the government said that the reason for the decline during February has been mainly attributed to a significant drop in prices of vegetables, egg, meat and fish, pulses and products, and milk and products. “The consumer price index-based retail inflation was at 4.26 per cent in January and 5.09 per cent in February 2024, while the previous low was witnessed in July,” the National Statistics Office (NSO) said.
What is interesting is the fact that the data showed that the lowest inflation was in Telangana (1.31 per cent) and highest in Kerala (7.31 per cent). The RBI, which has been mandated to ensure retail inflation remains at 4 per cent (+/- 2 per cent), has reduced the short-term lending rate (repo) by 25 basis points last month to ease concerns on the inflation front. The central bank is scheduled to announce the next set of bi-monthly monetary policy on April 9.
“There is a decline of 65 basis points in headline inflation of February 2025 in comparison to January 2025. It is the lowest year-on-year inflation after July 2024. Year-on-year food inflation for February was 3.75 per cent. A sharp decline of 222 basis points is observed in food inflation in February 2025 in comparison to January 2025. The food inflation in February 2025 is the lowest after May 2023,” the NSO data showed.
The data further showed that key items having lowest year-on-year inflation in February were ginger (-35.81 per cent), jeera (-28.77 per cent), tomato (-28.51 per cent), cauliflower (-21.19 per cent), garlic (-20.32 per cent). “On the other hand, top items with highest inflation were coconut oil (54.48 per cent), coconut (41.61 per cent), gold (35.56 per cent), silver (30.89 per cent), and onion (30.42 per cent),” it said.
Data on urban inflation showed a significant decline from 3.87 per cent in January 2025 to 3.32 per cent in February. A similar decline was observed in food inflation, which decreased from 5.53 per cent to 3.20 per cent in February. “A sharp decline in headline and food inflation in the rural sector was also observed in February to 3.79 percent from 4.59 percent a month earlier.
Economists and analysts said that the CPI inflation declined sharper than expected, appreciably below the mid-point of the RBI’s Monetary Policy Committee's medium-term target range, led by a welcome cooling in food inflation. “However, we believe that the sequential uptick in vegetables inflation in March 2025 is likely to prevent a further softening in the food and beverages inflation print in the month, after the substantial cooling seen over the past four months,” said ICRA chief economist Aditi Nayar.
Meanwhile, India's industrial production or IIP growth accelerated to 5 per cent in January 2025, driven by a rebound in manufacturing activity. The IIP growth in November 2024 was 5 per cent. The pace of factory output growth stood at 5 per cent in January 2025. “The government has also revised the December 2024 industrial output figure to 3.5 per cent from the provisional estimate of 3.2 per cent released in the previous month,” an official statement said.
As per the NSO data, the manufacturing sector’s output grew by 5.5 per cent in January 2025, up from 3.6 per cent in the year-ago month, while mining production growth declined to 4.4 per cent from 6 per cent year-on-year. “Power output growth slowed to 2.4 per cent in January 2025 from 5.6 per cent a year ago, while the April-January 2024-25 period showed that the IIP grew 4.2 per cent, slower than 6 per cent recorded in the year-ago period,” it showed.
