Inflation and Economic Trends in India
India’s inflation rate has reached a seven-month low of 3.6% as of February 2025, according to the latest SBI Ecowrap report. This significant decline is primarily attributed to a drop in food and beverage prices, particularly vegetables. The report, released by the State Bank of India’s Economic Research Department, also highlights trends in industrial growth and corporate performance, projecting a favorable economic outlook for the coming months.
CPI Inflation Moderation
The Consumer Price Index (CPI) inflation in India has seen a notable decrease, falling to 3.6% in February 2025. This decline is largely driven by a substantial drop in food and beverage prices, which eased by 185 basis points month-on-month to 3.84%. A significant factor in this reduction is the sharp decline in vegetable prices, which entered negative territory for the first time in 20 months, recording a CPI of -1.07%. Approximately 80% of this decline can be attributed to lower prices of garlic, potatoes, and tomatoes.
Interestingly, the report notes that the drop in garlic prices may be linked to dietary changes during the Maha Kumbh festival, which could have reduced the consumption of non-vegetarian food. Conversely, fruit inflation surged to a decade-high of 14.8%, likely due to increased demand during fasting periods associated with the same festival. While overall inflation has moderated, core inflation has crossed the 4.0% mark for the first time in 14 months, reaching 4.08%, indicating a more stable underlying inflation trend.
Future CPI Inflation Trends
Looking ahead, CPI inflation is expected to decline further to 3.9% in the fourth quarter of FY25, with an average of 4.7% projected for the entire fiscal year. For FY26, inflation is anticipated to remain in the range of 4.0% to 4.2%, while core inflation may range between 4.2% and 4.4%. The Reserve Bank of India (RBI) is likely to implement successive rate cuts in April and August 2025, with a cumulative reduction of at least 75 basis points expected. This trend may continue into October 2025, following a brief pause in August.
State-wise Inflation Analysis
The report reveals that 12 states recorded rural inflation rates above the national average, while 10 states reported urban inflation higher than the national urban average. Rural inflation continues to outpace urban inflation, primarily due to higher food prices and a larger food basket share in rural areas (54.2% compared to 36.3% in urban areas). Kerala and Chhattisgarh reported the highest inflation rates at 7.3% and 4.9%, respectively, while Telangana and Delhi recorded the lowest rates at 1.3% and 1.5%.
Rising Share of Imported Inflation
Despite the overall decline in CPI inflation, the share of imported inflation has risen significantly, increasing from 1.3% in June 2024 to 31.1% in February 2025. This rise is attributed to increasing prices of precious metals, oils, fats, and chemical products. However, the contribution of energy prices to imported inflation remains negative and is declining in absolute terms.
Industrial Growth and IIP Expansion
India’s Index of Industrial Production (IIP) expanded by 5.0% in January 2025, marking the highest growth in eight months, compared to 3.2% in December 2024. This growth was driven by various sectors, including manufacturing, which grew by 5.5%, and consumer durables, which saw a remarkable growth of 7.2%. However, consumer non-durables contracted by 0.2%, indicating weak demand in that segment.
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