Despite the overall decline in CPI inflation, the share of imported inflation rose from 1.3 per cent in June 2024 to 31.1 per cent in February 2025. This surge was driven by rising prices of precious metals, oils, fats, and chemical products.
The Consumer Price Index (CPI) inflation rate declined to 3.6 per cent in February 2025, marking a seven-month low, says the SBI Ecowrap report, published by the State Bank of India’s Economic Research Department. This decrease was primarily driven by a significant drop in food and beverage prices, with vegetable prices entering negative territory for the first time in 20 months. Approximately 80 per cent of this decline was attributed to reductions in the prices of garlic, potatoes, and tomatoes. Conversely, fruit inflation surged to a ten-year high of 14.8 per cent, potentially due to increased demand during fasting periods associated with the Maha Kumbh, which may have led to reduced consumption of non-vegetarian food, says the report.
Food and beverages inflation eased by 185 basis points (month-on-month) to 3.84 per cent, mainly due to a sharp decline in vegetable prices.
(Indeed, vegetable CPI declined sharply, entering negative territory (1.07 per cent) for the first time in 20 months. Approximately 80 per cent of this decline was attributed to garlic, potatoes, and tomatoes.)
The report says that India’s economic indicators for February 2025 reflect a moderation in inflation, improved industrial output, and strong corporate earnings. While inflation trends remain favorable in the short term, imported inflation risks and rupee depreciation pose challenges going forward. The RBI’s expected rate cuts could further bolster growth, providing a positive environment for capex expansion and industrial performance. The evolving economic landscape suggests a cautious but optimistic outlook for the coming months.
RBI Rate cuts
The SBI Ecowrap is a research report that analyses the Indian economy, including GDP growth, agricultural reforms, and formal and informal economies. The latest edition of SBI’s Ecowrap, released on March 12, 2025, provides a detailed analysis of India’s economic landscape in February 2025. It focuses on Consumer Price Index (CPI) inflation, industrial growth, imported inflation, and corporate performance. The report highlights a significant moderation in inflation, particularly in food and beverages, while also projecting future trends in monetary policy and industrial output.
The report says that while overall inflation moderated, core inflation — excluding food and energy prices — crossed the 4 per cent mark for the first time in 14 months, reaching 4.08 per cent. The report projects that CPI inflation will average 4.7 per cent for the fiscal year 2025 and is expected to decline to a range of 4.0-4.2 per cent in fiscal year 2026. In response to these trends, the Reserve Bank of India (RBI) is anticipated to implement successive rate cuts totalling at least 75 basis points in 2025, with reductions expected in April and August.
Simultaneously, fruit inflation surged to a 10-year high of 14.8 per cent, potentially due to increased demand during fasting periods associated with the Maha Kumbh. On the other hand, non-vegetarian food inflation (Egg/Meat/Fish) decelerated, possibly due to the Maha Kumbh period.
Fuel and light deflation is still continued for 18 months the report says.
According to the SBI’s Ecowrap, while overall inflation moderated, the core inflation crossed the 4.0 per cent mark after 14 months to 4.08 per cent. Core Inflation corresponds to the component of inflation that is likely to continue for a long period. Thus, core inflation captures the underlying trend of inflation and is, therefore, more stable.
Moderation in inflation
In the meanwhile, the Index of Industrial Production (IIP) expanded by 5.0 per cent in January 2025, the highest growth in eight months, driven by robust performances in the manufacturing and mining sectors. Additionally, corporate earnings remained strong, with more than 4,000 listed companies reporting revenue growth of 6.2 per cent, earnings before interest, taxes, depreciation, and amortization (EBITDA) growth of 11 per cent, and profit after tax (PAT) growth of 12 per cent in the third quarter of fiscal year 2025 compared to the same period in the previous year.
The SBI’s Ecowrap report suggests that India’s economic indicators for February 2025 reflect a moderation in inflation, improved industrial output, and strong corporate earnings. While inflation trends remain favourable in the short term, imported inflation risks and rupee depreciation pose challenges going forward. The RBI’s expected rate cuts could further bolster growth, providing a positive environment for capex expansion and industrial performance. The evolving economic landscape suggests a cautious but optimistic outlook for the coming months.
Notably, it says that RBI is expected to implement at least 75 basis points of rate cuts in 2025, with successive reductions anticipated in April and August.
Future CPI inflation trends
The CPI inflation is expected to decline to 3.9 per cent in Q4 FY25 and average 4.7 per cent for the current financial year. Inflation for the coming financial year (FY26) is projected in the range of 4.0-4.2 per cent, while core inflation may range between 4.2-4.4 per cent.
The report says that the Reserve Bank of India (RBI) may implement successive rate cuts in April and August 2025, with an overall expected cumulative rate cut of at least 75 basis points. This cycle of rate cuts may continue from October 2025, following an intervening gap in August 2025, SBI says.
Yet, despite the overall decline in CPI inflation, the share of imported inflation rose from 1.3 per cen in June 2024 to 31.1 per cent in February 2025. Key drivers include rising prices of precious metals, oils, fats, and chemical products. But the contribution of energy prices to imported inflation remains negative and in declining in absolute amount.
