Feb-25 CPI inflation eases to 3.61%; down 260 bps since October

13 Mar 2025 , 11:57 AM

FEBRUARY 2025 INFLATION FALLS DESPITE FLAT BASE

For the fourth month in a row, tapering of consumer inflation continued in India. In October 2024, CPI inflation scaled a 14-month high of 6.21%. Since then, inflation tapered to 5.48% in November, 5.22% in December, 4.26% in January, and now to 3.61% in February 2025. February headline inflation at 3.61% was despite a flat base effect, which means the fall in inflation was driven by lower prices. Bloomberg estimates had pegged Feb-25 CPI inflation at 3.98%, so the actual figure at 3.61% is 37 bps lower. Also, inflation has now tempered by a full 260 bps from the peak of October 2024. To add to the credibility of lower inflation, the January 2025 inflation was revised lower by 5 basis points from 4.31% to 4.26%.

FOOD INFLATION FALLS; CORE INFLATION SURGES

The headline inflation is broadly divided into food inflation, fuel inflation and core inflation; the residual inflation net of food and fuel. The table has 13 months data.

Month	Food Inflation (%)	Core Inflation (%)	Headline Inflation (%)
Feb-24	8.66%	3.37%	5.09%
Mar-24	8.52%	3.24%	4.85%
Apr-24	8.70%	3.23%	4.83%
May-24	8.69%	3.12%	4.80%
Jun-24	9.36%	3.14%	5.08%
Jul-24	5.42%	3.39%	3.60%
Aug-24	5.66%	3.40%	3.65%
Sep-24	9.24%	3.49%	5.49%
Oct-24	10.87%	3.67%	6.21%
Nov-24	9.04%	3.64%	5.48%
Dec-24	8.39%	3.58%	5.22%
Jan-25	6.02%	3.66%	4.26%
Feb-25	3.75%	4.00%	3.61%

Data Source: MOSPI & Ministry of Finance Estimates

Here are some key takeaways from the table above.

• The sharply lower food inflation and headline inflation is despite a flat base, which underlines that there is a genuine tempering of prices, especially food.
• Food inflation for February 2025 at 3.75% is down a full 712 bps from the peak of October 2024. More importantly, the fall in last 4 months has been progressive. Food inflation for Feb-25 is sharply lower than the previous 12-month average of 8.21%.
• Core inflation surged from 3.66% in January to 4.00% in February 2025, largely on account of a spike in the price of gold. Gold has spike on macro uncertainty. Average core inflation in last 12 months was 3.41%; so, Feb-25 is significantly higher.
• What about headline inflation? Compared to the average of the previous 12 months at 4.88%, February 2025 headline inflation is meaningfully lower at 3.61%. The combination of robust Kharif and Rabi have tempered food prices substantially.

Let us look at whether the triggers for inflation are coming from rural or urban India!

NON-FOOD INFLATION: URBAN STORY VERSUS RURAL STORY

Here is the macro picture of rural and urban inflation. Between January 2025 and February 2025, headline inflation moderated from 4.26% to 3.61%. During this period, headline rural inflation fell from 4.59% to 3.79%, while headline urban inflation also fell from 3.87% to 3.32%. What about food inflation? Between January 2025 and February 2025, the food inflation moderated from 5.97% to 3.75%. However, rural food inflation fell from 6.31% to 4.06%, while urban food inflation fell from 5.53% to 3.20%. Food inflation has considerably moderated in February 2025; across rural and urban pockets.

Non-Food Basket	Non-Food Weights	Rural Inflation	Urban Inflation	Headline Inflation
Clothing	6.32	2.71	2.86	2.77
Footwear	1.04	1.68	2.44	2.02
Clothing and footwear	7.36	2.57	2.84	2.68
Housing	–	–	2.91	2.91
Fuel and light	7.94	-0.54	-2.62	-1.33
Household goods and services	3.75	2.40	3.40	2.86
Healthcare	6.83	4.02	4.20	4.12
Transport and communication	7.60	3.19	2.59	2.87
Recreation and amusement	1.37	2.59	2.78	2.75
Education	3.46	3.55	4.04	3.83
Personal care and effects	4.25	13.40	13.78	13.58
Miscellaneous	27.26	4.90	4.67	4.78

Data Source: MOSPI & Ministry of Finance Estimates

Where is rural India lower and where is urban India lower in non-food items? In case of fuel & lighting inflation, inflation is -0.54% in rural India, but -2.62% in urban India. Transport and communication inflation is also higher in rural India at 3.19% compared to 2.59% in urban India. However, rural inflation has been lower in core items like clothing footwear, home goods, healthcare, and education. Personal Care & Effects inflation shows gold price effect.

FOOD BASKET: HOW RURAL AND URBAN INDIA STACKED UP?

Food basket with a weightage of 47.25% continues to be a swing factor for inflation; and February 2025 was no exception, considering food inflation tapered to 3.75%.

Food Basket	Food Weights	Rural Inflation	Urban Inflation	Headline Inflation
Cereals and products	12.35	6.36	5.47	6.10
Meat and fish	4.38	2.05	2.23	2.11
Egg	0.49	-3.42	-2.30	-3.01
Milk and products	7.72	2.57	2.84	2.68
Oils and fats	4.21	17.92	13.48	16.36
Fruits	2.88	15.25	14.25	14.82
Vegetables	7.46	0.83	-4.02	-1.07
Pulses and products	2.95	-0.30	-0.39	-0.35
Sugar and Confectionery	1.70	2.10	2.37	2.16
Spices	3.11	-6.56	-4.31	-5.85
Non-alcoholic beverages	1.37	3.35	4.30	3.73
Prepared meals	5.56	3.58	4.85	4.16
Food Basket	47.25	4.06	3.20	3.75

Data Source: MOSPI & Ministry of Finance Estimates

Here are the key items in the inflation basket across rural and urban segments.

• Let us start with cereals inflation. The overall cereals inflation for February 2025 was lower at 6.10%. The rural cereals inflation at 6.36% was sharply higher than the urban cereals inflation at 5.47%.
• Let us turn to high protein inflation. Overall protein inflation has sobered in January 2025 for milk, eggs, and meat products. The fall in high protein inflation has been sharper in rural areas than in urban centres.
• What about the all-important vegetables and fruits? Vegetables inflation has moderated in the last 3 months from 26.56% to 11.35%, to -1.07% in February 2025. The fall in vegetables inflation has been much sharper in urban areas. Fruits inflation spiked in last 3 months 8.49% to 12.22% to 14.82% in February 2025.

It is after a long time that food inflation has come under 4.0% in February 2025. The focus now shifts to the onset of monsoons this year.

APRIL 2025 MPC MAY SEE ANOTHER 25 BPS RATE CUT

In the February 2025 meeting of the RBI Monetary Policy Committee (MPC), the repo rates were cut by 25 bps to 6.25%. With the sharp fall in inflation and steady IIP, the RBI may be inclined to front-end the rate cuts and drop rates by another 25 bps to 6.00% in April 2025 itself. The only concern at this juncture would be the USDINR. However, the experience after the rate cut of February was that it did not really have any material impact in weakening the Indian rupee. That may encourage the RBI to go ahead and cut rates by 25 bps in April. Assuming inflation sustains at these levels, even after the rate cut, the real rates would continue to be relatively high in India. Now, an April rate cut looks increasingly likely!