Inflation set to ease: India's 2025 average pegged at 4.8%, rate cuts likely

In January, the headline retail CPI cooled to 4.3 per cent, down from 5.2 per cent in December 2024. A major reason for this decline was the significant 237 bps drop in food prices. Year-on-year, food and beverages (F&B) inflation slowed from 7.7 per cent in December to 5.7 per cent in January.

India's inflation is expected to average around 4.8 per cent in 2025. According to a report by Centrum Institutional Research, the recent decline in consumer price inflation (CPI) for January could provide the Reserve Bank of India (RBI) with enough room for another 25 basis points (bps) rate cut in the near future.

"We expect inflation to average 4.8 per cent in FY25. This sharp slowdown in inflation will provide RBI enough room for another 25bps rate cut," the report said. According to the report, last month's drop in inflation was primarily due to a fall in food prices, especially vegetables. As fresh vegetables and pulses enter the market, inflationary pressures are likely to ease further. The report suggested that this trend will help bring overall inflation to an average of 4.8 per cent for the financial year 2025.

In January, the headline retail CPI cooled to 4.3 per cent, down from 5.2 per cent in December 2024. A major reason for this decline was the significant 237 bps drop in food prices. Year-on-year, food and beverages (F&B) inflation slowed from 7.7 per cent in December to 5.7 per cent in January.

The fall in vegetable prices played a key role in reducing overall inflation, as fresh produce helped in easing price pressures. The report noted that with inflation concerns fading for now, the RBI will have more flexibility to focus on supporting economic growth. However, it also cautions that the depreciating rupee needs to be monitored closely, as it could have a spillover effect on domestic inflation.

The Monetary Policy Committee (MPC), in its latest meeting, has maintained a "Neutral" stance, indicating that future rate cuts will depend on incoming macroeconomic data. If inflation continues to remain under control, the RBI may consider another 25 bps rate cut to support economic activity.