India’s retail inflation dipped to 4.31 percent in January, marking the first time in five months that it has fallen below the previous month’s level of 5.22 percent. This decline, attributed to easing food prices, was highlighted in data released by the government on February 12.
The drop in inflation comes just a week after the Reserve Bank of India’s Monetary Policy Committee (MPC) announced the first rate cut in five years, setting the stage for potential future cuts if prices remain close to the 4 percent target. The policy rate has been reduced to 6.25 percent from the earlier 6.5 percent.
A significant factor behind the easing inflation was the decline in food prices. Food inflation fell to 6 percent in January, dipping below the 8 percent mark for the first time in four months. This was driven by continued reductions in the prices of cereals, vegetables, and pulses. Cereal inflation eased to 6.24 percent from 6.5 percent in December, while vegetable inflation saw a dramatic decline to 11.4 percent from 26.6 percent. Pulses and products inflation also decreased, falling to 2.59 percent from 3.83 percent in the previous month. Notably, eggs inflation hit a 27-month low.
However, not all food categories followed this trend. Inflation in oils and fruits rose to double digits, with fruits inflation reaching a near five-year high of 12.2 percent and oil inflation hitting a near three-year high at 15.6 percent. Meanwhile, inflation in miscellaneous products, which significantly contributes to core inflation, rose slightly to 4.35 percent from 4.19 percent in December.
Looking ahead, inflation is expected to remain around current levels in the coming months. The RBI projects an average inflation rate of 4.4 percent for the fourth quarter, with expectations of 4.5 percent in the first quarter of FY25. This is anticipated to ease further to 4 percent in the second quarter and 3.8 percent in the third quarter.