India's Retail Inflation Hits Seven-Month Low of 3.61%, Rate Cut Hopes Strengthen

India's Retail Inflation Drops to Seven-Month Low of 3.61%, Rate Cut Hopes Strengthen

India's retail inflation has eased to a seven-month low in February 2025, primarily driven by moderating food prices. This development strengthens expectations for another interest rate cut in the coming months as the economy seeks additional stimulus.

According to the latest data released by the Ministry of Statistics & Programme Implementation (MoSPI), the Consumer Price Index (CPI) based retail inflation stood at 3.61% in February, a significant drop from 4.26% in January and considerably lower than the 5.09% recorded in the same period last year.

Food Inflation Shows Remarkable Moderation

One of the most notable aspects of the February inflation data is the substantial easing in food inflation, which decreased to 3.75% from January's 5.97%. This marks the lowest food inflation rate since May 2023, providing much-needed relief to consumers across the country.

The cooling of food prices can be attributed to several factors:

• Slower price increases in essential food categories including cereals, vegetables, pulses, meat, eggs, and milk
• Favorable agricultural production outlook for 2024-25
• Fresh Rabi harvest arrivals in markets
• Healthy reservoir levels supporting agricultural activities

However, prices of fruit, oils, and fats continued to see increases during February, indicating that certain food categories remain under inflationary pressure.

Industrial Output Shows Robust Growth

In parallel with the positive inflation data, India's industrial output displayed remarkable strength in January 2025. The Index of Industrial Production (IIP) grew at 5%, significantly outpacing the 3.2% growth recorded in December.

This impressive performance was primarily fueled by:

• Manufacturing sector expansion of 5.5%
• Mining sector growth of 4.4%
• Electricity generation increase of 2.4%

Particularly encouraging is the capital goods segment, which posted 7.8% growth in January, indicating a revival in private investment activity. Consumer durables output also showed strong momentum, growing by 7.2% during the month.

State-wise Inflation Patterns

An interesting aspect of the February inflation data is the notable variation across states. According to the report, 12 out of 22 states reported inflation below the national average of 3.6%, including:

• Andhra Pradesh
• Delhi
• Gujarat
• Maharashtra
• Uttar Pradesh
• West Bengal
• Six other states

This widespread moderation in prices across multiple regions reinforces the view that inflationary pressures are broadly easing throughout the country.

Rate Cut Expectations Grow Stronger

With inflation continuing its downward trajectory for the fourth consecutive month and now comfortably below the Reserve Bank of India's target of 4%, economists are increasingly confident about further monetary policy easing.

The RBI's Monetary Policy Committee (MPC) had already reduced the repo rate to 6.25% last month, marking the first rate cut since the COVID-19 pandemic began in 2020. Market analysts now anticipate additional rate cuts in the April and June policy meetings.

As noted by economic experts, the RBI's focus may now shift from controlling inflation to supporting economic growth, which is projected to moderate to 6.4% in 2024-25.

Economic Outlook

The combination of easing inflation and strong industrial output presents a positive short-term outlook for the Indian economy. Economists expect inflation to remain around the 4% level in the coming months, supported by:

• Comfortable core inflation
• Continuing moderation in food prices
• Relatively stable global commodity prices

However, experts caution that weather-related disruptions and geopolitical tensions remain potential risk factors that could impact the inflation trajectory in the future.

For retail investors, this economic scenario suggests a potentially favorable environment for rate-sensitive sectors in the coming months as monetary policy is expected to become more accommodative.

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Categories: food inflation lowest, industrial output growth, retail inflation India