Retail inflation drops to 67-month low of 3.3% in March

Continuing the trend of moderation, India’s retail inflation declined further to 3.3% in March 2025. Such levels of headline inflation were last observed in August 2019. Sustained seasonal correction in food prices led the moderation in headline inflation in March 2025. The declining trend, however, was not uniform as fuel & light and core inflation saw an upswing in the same period.

Food inflation fell to 2.7% in March 2025 (March 2024: 8.5%; February 2025: 3.7%) due to correction in prices of vegetable and pulses. The prices of vegetables were down 7.0% yoy, the sharpest pace of decline since May 2023, thereby pulling the food inflation down to a 40-month low. In addition, prices of pulses were down 2.7% yoy in the same period, fastest fall in prices in over six years (February 2019: 3.8%). Even the cereals inflation was down to a 33-month low of 5.9% due to better kharif output. The easing of food inflation would help in bringing relief to households and the consumption demand as we begin the new fiscal.

“Speaking of demand, there are signs of demand picking up as reflected from the rising core inflation which stood at an expected 4.1% in March 2025. The increasing inflation in health (4.3%, 11-month high) & education (4.0%, 10-month) have pulled up the core inflation to a 16-month high in the same period. There are other segments namely housing and transportation & communication whose inflation is on the rise. Increased housing demand has pushed its inflation to a 14-month high of 3.0% in March 2025, while transport & communication inflation rose to a two-year high of 3.3%. In addition, the heightened global uncertainty-led jump in precious metals prices, has resulted in the personal care & effects inflation remaining high at 13.5% in March 2025 (February 202: 13.6%),” said Paras Jasrai, Associate Director at India Ratings and Research.

Interestingly, retail inflation (excluding vegetables & pulses) shot up to a 16-month high of 4.2% in March 2025.

Overall, retail inflation stood at 3.7% in 4QFY25, dipping below the 4% target for the first time after a gap of 21 quarters (2QFY20: 3.5%). It averaged at 4.6% in FY25 (Ind-Ra forecast: 4.7%; RBI: 4.8%). Lower inflationary trends in the core segment (3.5%, record low in 2011-12 series) in FY25 helped in pushing the headline inflation to the lowest level in five years (FY20: 4.8%). This was due to the lagged effect of the 250bp monetary tightening that the central bank had undertaken during May 2022-February 2023. Notable was also the government policy of lowering fuel prices as fuel & light segment registered a deflation of 2.5% in FY25 for the first time in the 2011-12 series, which has helped to negate the elevated food inflation in FY25 (7.3%).

The global economic environment remains under the purview of heightened uncertainty and volatility as economies world-wide battle the ramifications of Tariff Tantrums. This has put concerns over global demand which is expected to be muted in the ongoing fiscal. Consequently, the global commodity prices have witnessed a sharp decline in past few weeks. The brent crude stood at USD66.83/bbl as of 11 April 2025. Moreover, the satisfactory completion of rabi output would result in the food inflation to be comfortable. On the whole, Ind-Ra expects the retail inflation to be in the vicinity of 3.5% in the near term.

“We expect the RBI to cut policy rates further by 50bp in FY26, leading to the terminal repo rate at 5.50% and real repo rate at 1.5%, but it could be more depending upon the incoming data in the coming months which incorporates the impact of the current economic situation. However, as of now, the RBI is expected to maintain a status quo in June 2025 as the 50bp easing that has been done since February 2025 starts taking effect for the economy,” Jasrai added.