Supported by softening food prices, India's retail inflation, measured by the Consumer Price Index (CPI), eased to 4.31% in January 2025, down from 5.22% in December 2024, according to data released by the Ministry of Statistics and Programme Implementation on Tuesday.
This marks a decline of 91 basis points compared to December 2024 and represents the lowest year-on-year inflation since August 2024.
Food inflation, as measured by the Consumer Food Price Index (CFPI), dropped to 6.02% in January 2025, its lowest level since August 2024. In December 2024, food inflation stood at 8.39%.
Headline and food inflation in the rural sector fell to 4.64% (provisional) in January 2025, compared to 5.76% in December 2024. Urban inflation also saw a sharp decline, dropping from 4.58% in December 2024 to 3.87% (provisional) in January 2025.
Vegetable inflation continued to ease, falling to 11.3% in January from 26.6% in December.
"Vegetable inflation has been a significant contributor to overall CPI inflation in recent months, averaging 27% since January 2024. In fact, excluding vegetables, CPI inflation averaged 3.6% since January 2024, well below the RBI's target of 4%," said Rajani Sinha, Chief Economist at CareEdge.
Deflation in spices and a decline in inflation for pulses, eggs, and cereals also contributed to the overall reduction in food inflation. Sinha noted that robust Kharif production, coupled with strong progress in rabi sowing, has improved the outlook for food inflation.
Economists believe that easing inflation will leave consumers with higher disposable income, boosting demand and production activity. The latest inflation figures may also provide the Reserve Bank of India (RBI) with room for another 25 bps rate cut in either the April or June 2025 meetings, provided external factors remain favourable.
"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 effected by the MPC last week," said Aditi Nayar, Chief Economist and Head of Research and Outreach at ICRA.
She added that the significant moderation in vegetable prices is likely to positively impact the year-on-year food and beverages inflation print for the month, which is expected to ease to a six-month low of 5.2% in February 2025. Consequently, ICRA estimates headline CPI inflation to soften further to 4.0% in February 2025, down from 4.3% in January 2025.
Year-on-year housing inflation in January 2025 stood at 2.76%, compared to 2.71% in December 2024. Education and health inflation remained stable during the period.
The top five items with the highest year-on-year inflation in January 2025 were coconut oil (54.20%), potato (49.61%), coconut (38.71%), garlic (30.65%), and peas [vegetables] (30.17%). Items with the lowest inflation included jeera (-32.25%), ginger (-30.92%), dry chillies (-11.27%), brinjal (-9.94%), and LPG (excluding conveyance) (-9.29%), according to data from the Ministry of Statistics and Programme Implementation.