India’s CPI inflation eased further to a near 5-1/2 year low in Mar-25, coming in at 3.34% YoY compared to 3.61% in Feb-25. While market participants had expected inflation to decelerate, the actual print surprised yet again on the downside (Refinitiv consensus: 3.6%)

Key highlights of Mar-25 data

• On sequential basis, CPI posted a decline of 0.26% MoM, in contrast to an average increase of 0.27% typically associated with the month of March. In fact, Mar-25 marks the only second time that prices eased in the month on the series beginning 2011. 
• Annualized food inflation decelerated sharply to a 40-month low of 2.88% in Mar-25 from 3.84% in Jan-25. 
  1. Sequentially, food prices fell by 0.71% MoM, with dominant price correction seen in categories of Vegetables (-5.69% MoM), Eggs (-4.93% MoM), Pulses (-2.92% MoM) and Spices (-0.80% MoM)
  2. At an item wise level, steepest price correction was seen in case of Parwal, Garlic, Tomato, Lady’s Finger – all these vegetable items recorded a double-digit sequential drop in prices during Mar-25. 
• Consolidated fuel inflation moved into positive territory after a hiatus of 1-1/2 years, printing at 1.0% YoY in Mar-25. Notably, disinflationary impulse in the consolidated fuel inflation has been dissipating gradually over the last many months, with the impact on Mar-25 print getting exaggerated by an adverse base. 
• Core CPI inflation (captured by CPI excluding indices of Food & Beverages, Fuel & Light, and petrol and diesel items within the Miscellaneous basket) remained largely unchanged at 4.2% YoY in Mar-25 vs. 4.3% YoY in Feb-25. Momentum in the Personal care and effects sub-category remained elevated for the third consecutive month, reflecting the sharp increase in international price of precious metals along with the lagged impact of Rupee weakness playing out. 

WPI inflation

In line with CPI inflation, WPI too softened to 2.05% in Mar-25 from 2.5% in Feb-25. Consolidated food inflation declined by 0.1% MoM, driven by a fall of 1.1% MoM in primary food, while manufactured food products increased by 0.9% MoM. Within primary food, the downside was led by cereals along with vegetables.

Inference and Outlook

Mar-25 marked the second consecutive CPI inflation print below 4.0%. With this, the FY25 average CPI inflation now stands at 4.6%, i.e., marginally below RBI’s estimate of 4.7%.

Looking ahead, the outlook for food inflation remains largely comforting despite some early signs of price reversal (in line with seasonality) in Apr-25. Following expectations of a healthy Rabi output, sowing for the Zaid crop (i.e., summer crop before the Kharif season) has shown a robust increase. Having said that, the possible adverse impact of higher-than-normal temperatures expected over Apr-May-25 as per IMD, especially on perishables, remains on close watch.

Thankfully, prospects for the 2025 Southwest monsoon remain bright. Basis prevailing weather phenomenon (neutral ENSO as well as IOD), IMD projects an ‘above normal’ monsoon this year at 105% of LPA. In comparison, private weather forecaster Skymet forecasts a ‘normal’ monsoon at 103% of LPA, albeit with a slow start in Jun-25, with subsequent pick up in monsoon activity. This augurs well for prospects of the upcoming Kharif season output.

For FY26, we hold our CPI inflation call of 4.9%. However, we see some downside risk to our inflation forecast. The muted inflation, only marginally up from FY25, is from broad comfort on domestic food prices lingering into FY26, softness in global commodity prices and a downside to global inflationary impulses amidst uncertainties and tariff-related churn in global trade flows.

Despite the anticipated inflation trajectory in FY26, amidst downside risks to growth (predominantly from global factors), we continue to expect the RBI to hold its repo rates at 6.00%, but we increasingly see the risk of additional rate cuts over the next policy reviews. 

Below is Acuité Ratings & Research Limited's comment:

“The March CPI print marks a significant softening in India's inflationary trend, with headline CPI inflation easing to 3.34% YoY, the lowest since August 2019. This moderation, particularly in food inflation (down sharply to 2.6% YoY), offers welcome relief to households.

The disinflationary trend is broad-based, with declines across key food categories such as vegetables, eggs, pulses, meat, cereals, and milk. Rural inflation fell more sharply (down to 3.2% from 3.7% in February), while urban inflation ticked up slightly to 3.4%. This is the first time in 21 months that rural inflation came in lower than urban.

Core segments such as housing (3.0%), education (3.9%), health (4.2%), and transport & communication (3.30%) remain sticky, and we do not expect them to fall further than their current levels. Meanwhile, fuel & light inflation has turned mildly positive at 1.4% after a prolonged deflationary phase of 18 months.

Interestingly, we saw a surge in prices of non-essential items like gold (34.1%), silver (31.6%), and coconut oil (56.8%). It might be led by speculative demand or supply-constrained inflation rather than broad-based demand pressure. With RBI cutting its repo rate to 6.00% and growth remaining moderate, we see some risks of a little more policy easing. However, for now, we stick to our current forecast of the April cut being the last and inflation averaging at 4.9% in FY26, only slightly higher than this year's average of 4.6%.”

Table 1: Overview of key sub-components of inflation 

Note:

1) CPI-Consolidated Fuel index includes Fuel & Light and Petrol & Diesel indices from the Miscellaneous basket

2) CPI-Core excludes Food & Beverages and Consolidated Fuel indices from Headline CPI

Chart 1: Key sub-components of inflation (YoY% change)