New Delhi: India’s retail inflation dipped below the Reserve Bank of India's (RBI) median target of 4 percent in February, driven by subdued food prices, while the country’s industrial production expanded by 5 percent in January, according to data released by the government on Wednesday.
The decline in inflation has bolstered expectations of a further rate cut by the RBI in its upcoming monetary policy review on April 9. If implemented, this would mark the second consecutive rate reduction within two months. The Consumer Price Index (CPI)-based inflation fell to a seven-month low of 3.61 percent in February, primarily due to declining prices of vegetables, eggs, and other protein-rich food items. This decline follows an inflation rate of 4.26 percent in January and 5.09 percent in February 2024. The previous low was recorded in July 2024.
Since November 2024, inflation has remained within the RBI’s comfort zone of 4 percent (+/- 2 percent). The central bank had already reduced the repo rate by 25 basis points last month in response to easing inflation concerns. The latest data indicates that the sharp drop in headline inflation and food inflation can be attributed to falling prices of essential food items such as vegetables, eggs, meat, fish, pulses, and dairy products. Among commodities, ginger (-35.81 percent), jeera (-28.77 percent), and tomato (-28.51 percent) saw the steepest declines, while coconut oil (54.48 percent), coconut (41.61 percent), and gold (35.56 percent) recorded the highest inflation rates.
Meanwhile, the Index of Industrial Production (IIP) grew by 5 percent in January 2025, reflecting a recovery in manufacturing activity. This marks an improvement from the revised 3.5 percent growth recorded in December 2024 and the 4.2 percent growth seen in January 2024. During the April-January period of the current fiscal year, the IIP recorded a growth of 4.2 percent, slower than the 6 percent expansion in the corresponding period of the previous fiscal year. Manufacturing sector output increased by 5.5 percent in January 2025, compared to 3.6 percent in the same month last year. However, mining sector growth declined to 4.4 percent from 6 percent, while power generation growth slowed to 2.4 percent from 5.6 percent in January 2024.
Industry body Assocham stated that the improving macroeconomic indicators would enhance India’s resilience amid global economic uncertainties. The drop in CPI, well below the RBI’s target of 4 percent, will not only boost consumer demand but also reduce production costs for businesses, strengthening corporate balance sheets, said Assocham President Sanjay Nayar. He further added that the falling inflation rate could pave the way for additional rate cuts by the RBI. ICRA Chief Economist Aditi Nayar remarked that CPI inflation had declined more sharply than expected, settling well below the RBI’s mid-point target range. However, she cautioned that a potential rise in vegetable prices in March might limit further softening of food inflation. She added that the February inflation data has reinforced expectations of a back-to-back 25 basis points rate cut in April, with an additional 25 bps cut likely in June or August.
MP Financial Advisory Services LLP’s Managing Partner Mahendra Patil noted that the industrial output data signals strengthening economic activity, particularly in manufacturing and mining. This growth, combined with easing inflation, indicates positive momentum for the overall economy, he said. The data was released after the stock markets had closed. On Wednesday, the BSE Sensex declined by 72 points, marking its fourth consecutive session of losses, while the NSE Nifty slipped by 27.40 points to end at 22,470.50, with IT stocks dragging the indices down amid concerns over US economic growth.
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