Two macroeconomic indicators reflected a positive turn on Wednesday with retail inflation easing to a seven-month low at 3.6 per cent in February, down from 4.3 per cent in January, on the back of softening food prices. Simultaneously, industrial growth rose to 5 per cent in January, up from 3.5 per cent in December 2024.
Retail inflation at 3.6 per cent is below the Reserve Bank of India’s medium term target of 4 per cent. As the print has gone below the targeted inflation range of 2-6 per cent in February, experts believe this will prompt the Monetary Policy Committee (MPC) to effect another policy interest rate cut in April. However, they warned that inflation might go up in coming months, albeit not at an alarming rate.
“There is a decline of 65 basis points in headline inflation of February in comparison to January 2025,” a statement by Statistics Ministry said. Year-on-year inflation rate based on All India Consumer Food Price Index (CFPI) for February 2025 over February 2024 is 3.75 per cent (Provisional). “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 statement said.
Veg inflation
According to Rajni Sinha, Chief Economist with CARE EDGE, vegetable inflation, which had been a significant contributor to the overall inflation slipped into deflation (at -1.1 per cent), has reversed the trend of high inflation seen in the past months. Additionally, deflation in pulses (at -0.4 per cent Vs 2.6 per cent last month) also supported the lower food inflation reading. “Double-digit inflation in edible oils and fruits somewhat capped the moderation in overall food inflation,” she said.
However, the situation may not be the same next month. Aditi Nayar, Chief Economist with ICRA, said the sequential uptick in vegetables inflation in March 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.
“This would push up the CPI inflation print mildly to 3.9-4 per cent in the next month. Overall, the CPI inflation is now expected to average at 3.9 per cent in Q4 FY2025, well below the MPC’s projection of 4.4 per cent for that quarter,” she said.
With the current trend, there is strong possibility of policy interest rate cut. In a note, HDFC Bank said that latest inflation print gives space for the RBI to deliver another 25bps rate cut in April. Beyond that, a 25bps rate cut could be delivered in the June or August policy depending on incoming data. “We see cumulative rate cuts of 50- 75bps in this cycle for now,” it said.
Industrial Growth
The growth rates of the three sectors – Mining, Manufacturing and Electricity – in January were 4.4 per cent, 5.5 per cent and 2.4 per cent, respectively.
Based on use-based classification, top three positive contributors to the growth of IIP for January were primary goods, infrastructure/ construction goods and intermediate goods.
