February CPI Inflation May Print Below RBI Target

India’s CPI-based inflation for February is likely to have fallen below the RBI’s medium-term target of 4.0% for the first time in six months, driven by moderating food prices.

A poll of polls by various media organisations suggests inflation may have eased to around 3.90%, with both Reuters and Bloomberg estimating it at 3.98%.

 

The government will release the February retail inflation data on Wednesday evening, bolstering the case for RBI to cut interest rate again. 

In January, retail inflation dropped to a five-month low of 4.3%, while food inflation fell below 8% for the first time in five months. Economists attributed this decline to a broad-based moderation in food prices, particularly perishables.

In addition to vegetables, prices of pulses, rice, and milk also declined sequentially in February. However, wheat and edible oil prices continued to rise.

A report by Informist, citing Department of Consumer Affairs data, showed that in February:

• Tomato prices fell by 25.1%
• Onion prices dropped by 7.4%
• Potato prices declined by 16.6%

Despite the current decline, inflation risks remain. The India Meteorological Department has warned that summer and heatwaves could arrive earlier than usual, raising concerns that inflation could pick up once winter supplies start to diminish.

Additionally, Bank of America, as reported by Reuters, cautioned that the recent correction in vegetable prices may reverse as early as March, with extreme weather conditions posing risks to future crop yields.

Implications for RBI Policy
The moderation in inflation increases the likelihood of a repo rate cut when the RBI’s Monetary Policy Committee meets in early April.

With inflation projected to average 4.8% in 2024-25 and further ease to 4.0% by the second quarter of 2025-26, the central bank may find room to adjust its policy stance to support economic growth.

However, risks such as unpredictable weather patterns and supply-side disruptions will continue to influence future inflation trends and RBI’s policy decisions.