Lowest Inflation Since July 2024

India’s inflation rate dropped to 3.61% in February 2025, lower than expected, as vegetable prices cooled, according to the Ministry of Statistics and Programme Implementation. This marks the first time since last summer that inflation has fallen below the Reserve Bank of India’s (RBI) target of 4%, reaching its lowest level since July 2024.

Food Inflation Declines as Vegetable Prices Fall

Food inflation, a key component of India’s Consumer Price Index (CPI), stood at 3.75% in February.

• Vegetable prices dropped 1.07% year-over-year, a sharp contrast to the 11.35% hike in January.
• Pulses prices also declined by 0.35%, compared to a 2.59% rise in the previous month.
• Cereal price growth eased slightly to 6.1%, from 6.24% in January.

What’s Driving the Inflation Dip?

According to Bank of America analysts, higher supplies of vegetables—especially potatoes and tomatoes—have contributed to this decline. However, they caution that prices may rise again in March due to heatwaves and weather-related disruptions.

India’s GDP Growth Slows

The inflation data comes just after India’s GDP growth slightly missed expectations, recording a 6.2% expansion in the fourth quarter. For the financial year ending March 2025, India’s economy is expected to grow by 6.5%, significantly lower than the 9.2% growth recorded the previous year.

RBI Likely to Cut Interest Rates Further

With inflation easing, the RBI has shifted its focus to supporting economic growth. Analysts predict that the central bank will reduce interest rates by 100 basis points (1%) by the end of 2025, including the 25-basis-point cut already implemented in February.

Experts expect the repo rate to drop to 5.50% by the end of 2025, bringing it closer to the neutral rate. This move aims to boost economic activity while keeping inflation stable.

Key Takeaways

✔ India’s inflation fell to 3.61% in February, below RBI’s 4% target
✔ Vegetable prices declined, helping to ease food inflation
✔ GDP growth slowed to 6.2% in Q4, with a projected 6.5% annual growth
✔ RBI expected to cut interest rates further to support economic growth

This drop in inflation signals a positive trend for the Indian economy, but future price fluctuations remain uncertain due to climate and supply chain risks.