Retail inflation in India dropped to a seven-month low of 3.61 per cent in February, primarily due to falling prices of vegetables, eggs, and other protein-rich foods. This decline has created room for the Reserve Bank of India (RBI) to consider another interest rate cut in its upcoming policy meeting on April 9.

According to official data, consumer price index (CPI)-based inflation stood at 4.26 per cent in January and 5.09 per cent in February 2024. The last time inflation was lower than this was in July 2024. Since November 2024, inflation has remained within the RBI’s comfort zone of 4 per cent (+/-2 per cent ).

Food Inflation Sees a Sharp Decline

Food inflation, a major component of CPI, recorded a notable decline, standing at 3.75 per cent in February 2025. This marks a sharp drop of 222 basis points compared to the 5.53 per cent recorded in January 2025. The National Statistics Office (NSO) attributed this decline to falling prices of vegetables, eggs, meat, fish, pulses, and dairy products.

The steepest year-on-year price declines were seen in key food items such as ginger (-35.81 per cent ), jeera (-28.77 per cent ), tomato (-28.51 per cent ), cauliflower (-21.19 per cent ), and garlic (-20.32 per cent ). Meanwhile, some commodities experienced significant inflation, with coconut oil rising by 54.48 per cent , coconut by 41.61 per cent , gold by 35.56 per cent , silver by 30.89 per cent , and onion by 30.42 per cent .

Urban and Rural Inflation Trends

Inflation in urban areas saw a decline from 3.87 per cent in January to 3.32 per cent in February, while food inflation in cities dropped from 5.53 per cent to 3.20 per cent during the same period. A similar trend was observed in rural inflation, which fell from 4.59 per cent in January to 3.79 per cent in February.

Among states, Telangana recorded the lowest inflation rate at 1.31 per cent , while Kerala experienced the highest inflation at 7.31 per cent .

RBI’s Policy Outlook and Rate Cut Expectations

The RBI, which aims to maintain inflation around 4 per cent , had already reduced the repo rate by 25 basis points last month in response to easing inflationary pressures. With inflation now falling below 4 per cent , analysts expect another 25 basis points rate cut in April’s monetary policy meeting.

ICRA Chief Economist Aditi Nayar stated that the sharper-than-expected decline in February inflation strengthens the case for a consecutive rate cut in April. She, however, cautioned that a potential rise in vegetable prices in March may limit further easing in food inflation.

Nayar further projected another 25 bps cut in the repo rate, possibly in June or August 2025, depending on inflation trends.

Data Collection and Market Coverage

The NSO compiles its inflation data from 1,114 urban markets and 1,181 villages across all states and Union Territories, ensuring comprehensive coverage of price trends.

With inflation cooling and staying well within RBI’s target range, the upcoming monetary policy meeting on April 9 will be crucial in determining the central bank’s next steps in supporting economic growth while keeping inflation in check.