India’s retail inflation eases to 4.31% in January, lowest since August 2024

The headline inflation has been on a downward trend since peaking at 6.21% in October 2024, the highest level in over a year since September 2023.

Food inflation drops sharply

Food inflation, based on the Consumer Food Price Index (CFPI), dropped to 6.02% in January 2025 from 8.39% in December 2024, a sharp decline of 237 basis points.

The rural food inflation stood at 6.31%, while urban food inflation was lower at 5.53%.

The decline in food inflation is largely attributed to easing prices of vegetables, eggs, pulses, cereals, and related products.

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 (30.17%).

Items with the steepest deflation included jeera (-32.25%), ginger (-30.92%), dry chilies (-11.27%), brinjal (-9.94%), and LPG (-9.29%).

Rural and urban inflation trends

Rural inflation eased to 4.64% in January from 5.76% in December, while urban inflation fell sharply to 3.87% from 4.58% in the previous month. Similarly, rural food inflation decreased to 6.31% from 8.65%, and urban food inflation dropped to 5.53% from 7.9%.

RBI projection

The Reserve Bank of India expects inflation at 4.8% in the current financial year and expects it to ease to 4.2% next year.

The central bank targets inflation at 4% within a tolerance band of 2 percentage points on either side. Easing inflation could push the RBI towards another rate cut after it slashed key policy rates last week for the first time in nearly five years.