India saw a decrease in retail inflation to 3.61% in February compared to 4.31% in January on an annual basis, according to government data released on Wednesday.

The decrease in the Consumer Price Index (CPI) in February was mainly attributed to lower food prices. Food inflation, which makes up almost half of the CPI basket, dropped to 3.75% from 5.97% in January. This marks the lowest food inflation rate since May 2023, according to official data.

In February 2025, vegetable inflation fell to 1.07% year-on-year, significantly lower than the 11.35% growth seen in January. Cereal prices increased by 6.10%, down slightly from the 6.24% growth in January, while pulses saw a decrease of 0.35%, contrasting with a 2.59% increase the previous month.
Rural inflation decreased to 3.79% from 4.59% in January, and urban inflation dropped to 3.32% from 3.87% in the previous month.

“There is a decline of 65 basis points in headline inflation of February 2025 in comparison to January 2025. It is the lowest year-on-year inflation after July 2024,” the government noted. 

A notable decrease in headline inflation in the urban sector was observed, with a drop from 3.87% in January 2025 to 3.32% (Provisional) in February 2025. This trend was similarly reflected in food inflation, which decreased from 5.53% in January 2025 to 3.20% in February 2025.

In terms of housing inflation, the year-on-year rate for February 2025 stood at 2.91%, slightly higher than the corresponding rate of 2.82% in January 2025. It is important to note that the housing index is compiled exclusively for the urban sector.

RBI’s inflation outlook

The Reserve Bank of India’s Monetary Policy Committee in February noted that inflation has decreased due to a positive outlook on food prices and is projected to continue to decrease in FY26, providing relief to Indian households. The RBI’s objective is to maintain inflation within a target range of 2-6%.

The central bank has predicted inflation to be 4.2% for the fiscal year 2025-26. The RBI’s Monetary Policy Committee (MPC) anticipates inflation to be at 4.5% in the first quarter, 4% in the second quarter, 3.8% in the third quarter, and 4.2% in the fourth quarter of FY26, with risks evenly distributed.

Newly appointed RBI Governor Sanjay Malhotra pointed out that inflation has decreased from its peak of 6.2% in October 2024 to lower levels in November-December. This decline can be attributed to the drop in vegetable prices. The projected CPI inflation for 2024-25 is 4.8%, with expectations for further moderation in 2025-26, assuming a normal monsoon season.