Retail inflation in India is expected to ease in January 2025, offering some relief to consumers. According to a Reuters poll, consumer inflation is predicted to drop to 4.60%, marking a significant decline from December’s 5.22%. This decrease in inflation is primarily attributed to slowing food price rises, particularly in key staples like cereals, milk, vegetables, pulses, and sugar. The Reserve Bank of India (RBI) noted in its January 2025 Bulletin that the moderation in food prices is largely due to the availability of fresh winter produce.
The decline in food prices has been more pronounced in items such as rice, onions, potatoes, and tomatoes, which have seen sharp corrections in prices. However, certain other food items, like edible oils and wheat, continue to experience higher prices, contributing to inflationary pressures. The RBI also pointed to the continued reduction in rice prices, as well as a slowdown in vegetable price hikes, as positive developments for consumers.
The central bank has also reduced the repo rate by 25 basis points, from 6.5% to 6.25%, in a bid to stimulate economic growth and encourage consumption. This rate cut is seen as a move to incentivize borrowing and investment, helping to boost economic activity amidst moderate inflation. Akhil Puri, Partner at Forvis Mazars, noted that the RBI’s approach is balanced, aiming to promote growth while managing inflation. With GDP growth for FY26 projected at 6.7%, a slower recovery than the previous year is expected, according to Puri.
Despite the positive outlook for inflation in January, the RBI has cautioned that inflationary pressures could build in the coming months due to rising rural wages and corporate salary growth. These factors could potentially offset the recent decline in food prices. Additionally, the RBI highlighted concerns about the economic slowdown in the US and moderate growth in emerging markets, which could influence global commodity prices and inflation in India.
As the official inflation data for January is set to be announced on February 12, 2025, at 5:30 pm IST, all eyes will be on whether the forecasted downtrend in inflation materializes or if unforeseen factors cause prices to rise again.
