India’s Retail Inflation Falls to 67-Month Low of 3.34% in March

March Inflation Data: Subdued Food Prices Drive the Decline

India’s retail inflation eased to a 67-month low of 3.34% in March, marking a significant decline from 3.61% in February. The decrease is largely attributed to a moderation in food inflation, which has remained subdued. March marks the second consecutive month that India’s inflation has stayed below the Reserve Bank of India’s (RBI) target rate of 4%.

Food Inflation:

• Food inflation decreased to 2.69% in March, down from 3.75% in February.

• The easing of food inflation helped bring down the overall retail inflation rate, indicating that the pressure on consumer prices from essential goods had lessened.

Highlights:

• Retail inflation for March stands at 3.34%, down from 3.61% in February.

• Food inflation declines to 2.69%, helping to reduce overall inflation.

• Inflation stays below the RBI’s target for the second consecutive month.

Economic Growth and Inflation Forecasts

For the fiscal year 2024-25 (FY25), India’s inflation ended at 4.6%, a notable decline from 5.4% in the previous fiscal year (FY24). The RBI has revised its inflation forecasts downwards, reflecting a more optimistic outlook for the coming months.

Inflation Outlook:

• The RBI now expects inflation to dip further to 4% in the upcoming year, down from previous projections.

• The monetary policy committee (MPC) has adjusted its Q1 inflation forecast to 3.6% from 4.5%, while the Q2 forecast has been revised to 3.9% from 4%.

Highlights:

• India’s inflation for FY25 was 4.6%, compared to 5.4% in FY24.

• The RBI now expects inflation to fall to 4% in the next year.

• Q1 inflation forecast revised to 3.6% from 4.5%, and Q2 to 3.9% from 4%.

Impact on Monetary Policy: Rate Cuts Likely to Continue

The decline in inflation has provided the RBI with more flexibility in its monetary policy stance. With inflation under control, the RBI has lowered its growth projections and hinted at potentially more aggressive rate cuts to support economic recovery.

In April, the RBI delivered its second consecutive rate cut of the year, reducing the policy rate to 6% from the previous 6.25%. The reduced inflationary pressures and the RBI’s desire to stimulate growth may lead to further rate cuts in the future.

RBI’s Growth Outlook:

• The RBI has revised its growth forecast for the year to 6.5%, down from 6.7%.

• Lower inflation is expected to support the RBI’s decision-making in the upcoming monetary policy reviews.

Highlights:

• The RBI cut the policy rate to 6% in April.

• RBI’s growth outlook revised downward to 6.5% from 6.7%.