Retail inflation in India fell to a five-month low in January, marking a significant shift in the country’s economic landscape. The Consumer Price Index (CPI)-based inflation eased to 4.31 percent in January 2025, down from 5.22 percent in December 2024. The drop in inflation was largely driven by softer food prices, including vegetables, eggs, and pulses. This decline in food inflation helped pull down overall inflation levels, with the food basket inflation standing at 6.02 percent in January—substantially lower than the 8.39 percent recorded in December 2024 and the 8.3 percent seen in January 2024.
The trend of declining inflation, particularly in the food sector, has been evident since October 2024. January’s inflation rate was the lowest since August 2024, when it had dropped to 3.65 percent. This downward trend is an encouraging sign for both consumers and policymakers, as it signals a reduction in price pressures across the economy. The inflation rate in January 2025 marked a 91 basis point reduction from December 2024, making it the most significant monthly drop in the last few months.
One of the key factors contributing to the decline in inflation was a noticeable drop in the prices of essential food items. Vegetables, a key component of household budgets, saw prices fall, contributing to the reduced food inflation. Similarly, the prices of pulses and eggs also moderated, helping to stabilize the food basket’s inflation. This shift comes after a period of high inflation in food items, particularly in 2024, when food prices had been soaring due to various supply-side constraints. The drop in food inflation is seen as a positive development, providing some relief to households that had been facing higher food bills in recent months.
However, despite the overall reduction in inflation, some food items continued to experience sharp price increases. Coconut oil saw the highest year-on-year inflation at 54.2 percent, followed by potatoes at 49.61 percent and coconut at 38.71 percent. Other items that saw significant price increases included garlic, which rose by 30.65 percent, and peas, which saw an inflation of 30.17 percent. These price hikes were a reminder that inflationary pressures in certain sectors still persist, even as the overall inflation rate has softened.
At the same time, some other items experienced a noticeable decrease in their inflation rate. Jeera (cumin) prices fell by 32.25 percent year-on-year, while ginger prices declined by 30.92 percent. The prices of dry chilies also saw a significant drop, down by 11.27 percent. Additionally, the cost of brinjal and liquefied petroleum gas (LPG), excluding conveyance costs, saw price decreases. These declines helped balance out the rising costs of certain other food items, contributing to the overall reduction in inflation.
The data from the National Statistics Office (NSO) further underscored the positive trend in inflation, indicating that the overall inflation rate has remained under control since the last quarter of 2024. For policymakers, the softer inflation is a sign that inflationary pressures are easing, allowing for more stability in the economy. The decline in inflation, particularly in the food sector, is expected to bring some relief to households across the country, as food items make up a significant portion of household expenditures.
The continued decline in inflation is also expected to have a broader impact on the economy, as it alleviates some of the pressure on the Reserve Bank of India (RBI). The central bank has been grappling with high inflation for the past few years, which has required it to adopt a tight monetary policy stance. As inflation continues to moderate, there may be room for the RBI to adopt a more accommodative approach in the future, potentially supporting growth in the economy. Lower inflation could also encourage consumer spending, boosting demand for goods and services across sectors.
Moreover, the drop in inflation can help improve the overall business environment. As the cost of living falls, consumers are likely to have more disposable income, which could lead to higher consumption and, in turn, contribute to economic growth. This is particularly important as India continues its recovery from the effects of the pandemic. A stable inflation environment is crucial for creating the right conditions for businesses to expand and for foreign investors to view India as an attractive destination.
The government’s efforts to address inflation have also played a role in helping to bring down food prices. The Indian government has taken various measures to ensure the availability of essential food items, including intervening in markets to prevent hoarding and ensuring that supplies reach areas that are facing shortages. These steps have helped in mitigating some of the inflationary pressures and contributed to the decline in food prices observed in January.
However, despite the positive trends, experts caution that the global economic outlook remains uncertain, and external factors such as commodity price fluctuations and supply chain disruptions could still pose challenges to inflation management. As a result, while the outlook for inflation in India appears favorable in the short term, it will be important for policymakers to remain vigilant and ready to respond to any emerging risks.
Furthermore, the lower inflation rate also has implications for wage growth. With inflation under control, there is a possibility that real wages could rise, providing workers with greater purchasing power. This, in turn, could improve the overall standard of living for many Indians. It is crucial, however, for wage growth to keep pace with productivity improvements in order to ensure sustainable economic growth.
In the coming months, attention will shift to the government’s fiscal policy and whether it can maintain its focus on controlling inflation while also supporting growth. There may be calls for targeted interventions to help those most affected by price increases in specific food items, such as coconut oil and potatoes, which have experienced significant price hikes. Such measures would ensure that the benefits of declining inflation are felt more broadly across the population.
Overall, the latest inflation data paints a picture of a more stable and favorable economic environment. While challenges remain, the steady decrease in inflation offers hope for continued economic recovery, greater consumer confidence, and a more sustainable growth trajectory for India. If the downward trend continues, it could signal the beginning of a period of stability that benefits both households and businesses alike.