Domestic retail inflation eases to 4.31% in January as food prices cool

India’s retail inflation fell to 4.31 per cent in January 2025, down from 5.22 per cent in December, driven by a slowdown in food price increases. This decline was steeper than the expected 4.6 per cent, offering relief to consumers grappling with high living costs. The easing of inflation was largely due to improved supply conditions and seasonal trends that helped stabilise food prices.

Food inflation sees a significant drop

A major contributor to this decline was the moderation in food inflation, which had previously pushed overall inflation higher. The availability of fresh winter crops in markets and a stable kharif harvest helped cool prices across essential food categories. While staple grains like wheat and rice saw minor fluctuations, vegetables recorded the most notable drop, reducing overall food price pressure. The seasonal pattern of declining food costs during winter months also played a role in easing inflation.

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RBI’s monetary policy and inflation outlook

The Reserve Bank of India (RBI) welcomed the decline in inflation, reaffirming its commitment to keeping price levels within its 2-6 per cent target range. Recent monetary policy adjustments have

focused on balancing inflation control with economic growth, and this drop in inflation strengthens the case for a stable policy approach.

For FY26, the central bank expects inflation to remain within a comfortable range, forecasting a gradual decline through the year. The RBI has projected inflation at:

• 4.5 per cent in Q1
• 4 per cent in Q2
• 3.8 per cent in Q3
• 4.2 per cent in Q4

This anticipated moderation is expected to provide stability to the economy while ensuring consumer purchasing power remains intact.

Macroeconomic implications and future risks

While the recent data is encouraging, external risks remain. Global commodity price fluctuations, currency movements, and economic uncertainties in major markets could influence domestic inflation trends. Additionally, any supply chain disruptions or unexpected weather events could lead to price volatility in key food categories.

The Economic Survey 2024-25 has indicated that inflation is likely to remain under control in the coming months, supported by a favourable agricultural outlook. However, policymakers remain cautious about external risks that could impact price stability.

With inflation showing signs of sustained moderation, consumers may experience some relief in their daily expenses, while the RBI gains more room to focus on economic growth and financial stability.