Inflation Hits 7-Month Low of 3.61% in February, While IIP Registers 5% Growth; RBI May Cut Interest Rates.
Indians received welcome news on the inflation front this Holi. In February 2025, India's retail inflation rate reached a seven-month low. This decline is below the Reserve Bank of India (RBI)'s target range, providing significant relief to the general public. Simultaneously, indicators suggest an improvement in industrial production, strengthening the economy.
Significant Drop in Inflation Rate
According to government data, the retail inflation rate in February 2025 stood at 3.61%, compared to 4.26% in January. This represents a decrease of 65 basis points. This is the lowest inflation rate since July 2024. The main reason for this decline is the reduction in the prices of food items. Prices of tomatoes, onions, potatoes, and other green vegetables decreased, impacting overall food inflation.
Food Prices Decline
February witnessed a notable decrease in food inflation. The Consumer Food Price Index (CFPI) registered at 3.75%, a decrease of 222 basis points compared to January. This is considered the lowest food inflation rate since May 2023. The primary reason is the fall in prices of vegetables, eggs, meat, fish, pulses, and dairy products. Furthermore, a difference in inflation rates was observed between rural and urban areas.
Higher Inflation in Rural Areas Compared to Urban Areas
Rural areas experienced higher inflation rates than urban areas. In February, the retail inflation rate in rural India was 3.79%, compared to 4.59% in January. Similarly, rural food inflation decreased from 6.31% in January to 4.06% in February. On the other hand, the urban inflation rate stood at 3.32%, down from 3.87% in January. Urban food inflation also decreased from 5.53% in January to 3.20% in February.
RBI May Further Reduce Interest Rates
Following this significant drop in inflation, expectations are high that the Reserve Bank of India (RBI) may cut interest rates in its next monetary policy. The RBI had previously reduced the repo rate, providing relief to home loan and other borrowers. Now, with inflation further decreasing, the central bank may once again cut interest rates, further boosting economic activity.
Strong Surge in Industrial Production
Along with the decline in inflation, industrial production has also strengthened. In January 2025, the Index of Industrial Production (IIP) registered a 5% increase, exceeding the 4.2% growth recorded in January 2024. This data indicates strengthening in the manufacturing sector and the Indian economy's progress towards growth. The government revised its December 2024 growth estimate from 3.2% to 3.5%, reflecting the upward trend in industrial production.
Inflation Persists in Some Sectors
However, inflation remains in some sectors. Housing inflation stood at 2.91% in February, compared to 2.82% in January. Inflation in the health sector increased from 3.97% in January to 4.12% in February. The transportation and communication sector recorded an inflation rate of 2.87%, up from 2.76% in January. Conversely, fuel and energy inflation remained negative, increasing from -1.49% in January to -1.33% in February.
