India’s retail inflation falls to 5 month low of 4.31% in January

By: Team India Tracker

According to data from the National Statistics Office (NSO), headline inflation in January 2025 was 91 basis points lower than in December 2024, marking the lowest year on year inflation since August 2024.

India’s retail inflation in the month of January 2025, according to the data released by the Ministry of Statistics and Programme Implementation, dropped to a 5 month low of 4.31 percent from 5.22 percent in December 2024. The urban inflation in January 2025 dropped to 3.87 percent from 4.58 percent in December 2024. Talking about the inflation in rural areas, it decreased from 5.76 percent in December to 4.64 percent in December 2024. Consumer price index is used in calculating the retail inflation in the economy by tracking the changes in prices of most commonly used goods and services. This means that higher the CPI, higher the inflation which occurs due to the rise in prices of goods and services.

Furthermore, food inflation was 6.02 percent, a significant decrease from 8.39 percent in December and 8.3 percent in the same month the previous year. According to data from the National Statistics Office (NSO), headline inflation in January 2025 was 91 basis points lower than in December 2024, marking the lowest year on year inflation since August 2024.

The top five items showing highest year on year inflation in January 2025 are Coconut oil (54.20 percent), potato (49.61 percent), coconut (38.71 percent), garlic (30.65 percent), peas [vegetables] (30.17 percent) while on the other hand, the top five items with lowest inflation in January, 2025 are jeera (-32.25 percent), ginger (-30.92 percent), dry chilies (-11.27 percent), brinjal (-9.94 percent), LPG (excl. conveyance) (-9.29 percent). 

Source: Ministry of Statistics and Programme Implementation

For the first time in five years, the Reserve Bank lowered interest rates by 25 basis points last week in an effort to spur growth in the face of favorable inflation. The government has mandated the Reserve Bank of India to maintain the retail inflation at 4 percent with a margin of 2 percent on either side for a five-year period ending March 2026. The CPI is heavily weighted by the RBI while formulating its bi-monthly monetary policy. 

The MPC had increased the benchmark interest rate by 250 basis points in the fiscal year 2022-23 in an effort to control the raging inflation. The RBI increases the repo rate as a measure of tight monetary policy to counter inflation. Repo rate is the interest rate at which the central bank of a country lends money to commercial banks. In the event of inflation, central banks increase repo rate as this restricts the commercial banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in reducing inflation.

Sakshi Gupta, principal economist at HDFC Bank said, “Apart from wheat and vegetable oil (prices), all other food categories are showing signs of moderation. The softness in food prices, usually witnessed during winter months, is also supported by a healthy kharif (autumn season) output.” 

"Softening inflation prints back the central bank MPC's (Monetary Policy Committee) move to lower rates earlier in the month, with headline prints expected to head to and below the midpoint of the target over the next 2-3 months," said Radhika Rao, Executive Director and Senior Economist, DBS Bank.

According to the data, the top five states that had higher January inflation than the national average were Kerala (6.76 percent), Odisha (6.05 percent), Chhattisgarh (5.85 percent), Haryana (5.1 percent), and Bihar (5.06 percent). At 2.02 percent, Delhi had the lowest rate of inflation.

Aditi Nayar, Chief Economist and Head of Research and Outreach at ICRA said, "The CPI inflation fell appreciably sharper than we expected to a five-month low of 4.3% in January 2025 (ICRA exp: 4.6%), led primarily by food items, vindicating the unanimous rate cut affected by the MPC last week." She continued on to say that the notable slowdown in vegetable prices will probably have a beneficial effect on the month's year-over-year food and beverage inflation figure, which is predicted to drop to a six-month low of 5.2 percent in February 2025. As a result, ICRA projects headline CPI inflation will decrease from 4.3 percent in January 2025 to 4 percent in February 2025.