Retail Inflation in India Hits Five-Year Low

By Sarita Chaganti Singh and Aftab Ahmed
NEW DELHI (Reuters) – India’s retail inflation has dropped to a more-than-five-year low as food prices continued to stabilize, allowing room for deeper central bank rate cuts amid concerns over the potential impact of the U.S.-China trade war on global growth.

Key Points

• Annual retail inflation in March fell to 3.34%, below economists’ expectation of 3.60%.
• This rate is the lowest seen since August 2019, down from 3.61% in February.
• Dipanwita Mazumdar, an economist at Bank of Baroda, stated that retail inflation benefited from softer food prices, coupled with expectations of improved agricultural output.

Food Inflation Trends

• Food inflation decreased to 2.69% in March from 3.75% in February, marking the lowest rate since November 2021.
• Vegetable prices reduced by 7.04% year-on-year, contrasting with a 1.07% increase in February.

Reserve Bank of India’s Actions

• The Reserve Bank of India (RBI) lowered its key policy rate for the second consecutive time, indicating more cuts are likely to stimulate domestic demand.
• The bank adjusted its GDP growth estimate for the current fiscal year to 6.5% from 6.7%.
• The RBI cautioned that ongoing global market uncertainties and adverse weather supply disruptions could affect inflation levels. It forecasts retail inflation to be 4% for the current fiscal year, assuming normal monsoon conditions.

Future Outlook

• Gaura Sen Gupta from IDFC First Bank suggested at least two more rate cuts are likely in the remainder of 2025, with a potential for a third cut should global growth deteriorate further.
• The RBI’s monetary policy panel is scheduled to meet in June, with anticipation for above-average monsoon rains in 2025 boosting expectations for economic growth.

Additional Insights

• Prices of cereals rose by 5.93%, compared to a 6.1% increase in February, while pulses prices fell by 2.73% versus a 0.35% decline the previous month.
• Core inflation, excluding volatile food and energy items, slightly increased to 4.1% in March, up from 3.9% the previous month.