Mar-25 CPI inflation falls to 3.34%; lowest since August 2019

16 Apr 2025 , 10:21 AM

MARCH 2025 INFLATION LOWER THAN EXPECTED

In the last 5 months between October 2024 and March 2025, headline inflation has progressively fallen from a high of 6.21% to 3.34%. In the same period, food inflation has plummeted from 10.87% to 2.69%. Even as the Fed turned dovish in September 2024, RBI had held rates steady. That strategy appears to be paying off. For March 2025, the headline CPI inflation at 3.34% was 26 bps below Reuters estimates at 3.60%.

A combination of 3 factors worked to bring down food inflation in last 5 months. The Rabi crop was much better than expected due to overflowing reservoir levels. Secondly, there has been a steady flow of foodgrains to the mandis and that has helped temper price. Lastly, the government has intervened in supply chain smoothening and managing inventories; which was a key factor in containing inflation.

FOOD INFLATION FALLS; BUT CORE INFLATION STICKY

March food and headline inflation were  sharply lower, despite a lower base, but core inflation remained sticky. The table captures 13 months data.

Month	Food Inflation (%)	Core Inflation (%)	Headline Inflation (%)
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%	3.67%	4.26%
Feb-25	3.75%	3.95%	3.61%
Mar-25	2.69%	4.10%	3.34%

Data Source: MOSPI & Ministry of Finance Estimates

Here are some key takeaways from the table above.

• Food inflation for March 2025 at 2.69% is down a full 818 bps from the peak of October 2024. Inflation has fallen progressively in last 5 months. Food inflation for March 2025 is sharply lower than the previous 12-month average of 7.81%.
• Core inflation is up from 3.95% in February to 4.10% in March 2025, largely due to gold price spike amidst global macro uncertainty. Average core inflation in last 12 months was 3.46%; so, March core inflation is significantly higher.
• What about headline inflation? Compared to the average of previous 12 months at 4.76%, March 2025 headline inflation is meaningfully lower at 3.34%. Going ahead, a lot will depend on the onset and distribution of the monsoons.

Did the triggers for falling inflation come from rural or urban India?

NON-FOOD INFLATION: URBAN STORY VERSUS RURAL STORY

Here is the macro picture. Between February 2025 and March 2025, headline inflation moderated from 3.61% to 3.34%. During this period, headline rural inflation fell from 3.79% to 3.25%, while headline urban inflation was actually up from 3.32% to 3.43%. What about food inflation? Between February 2025 and March 2025, headline food inflation moderated from 3.75% to 2.69%. However, rural food inflation fell from 4.06% to 2.82%, while urban food inflation fell from 3.15% to 2.48%. Urban India has faced stress in non-food basket.

Non-Food Basket	Non-Food Weights	Rural Inflation	Urban Inflation	Headline Inflation
Clothing	6.32	2.66	2.91	2.71
Footwear	1.04	1.67	2.55	2.02
Clothing and footwear	7.36	2.51	2.83	2.62
Housing	–	–	3.03	3.03
Fuel and light	7.94	0.94	2.33	1.48
Household goods and services	3.75	2.18	3.22	2.68
Healthcare	6.83	4.17	4.39	4.26
Transport and communication	7.60	3.55	3.09	3.30
Recreation and amusement	1.37	1.86	2.84	2.40
Education	3.46	3.76	4.08	3.98
Personal care and effects	4.25	13.33	13.69	13.50
Miscellaneous	27.26	5.05	4.89	4.99

Data Source: MOSPI & Ministry of Finance Estimates

Where is rural India lower and where is urban India lower in non-food inflation? Rural India has improved in terms of fuel & lighting inflation. Here, the inflation is 0.94% in rural India, but 2.33% in urban India. Transport and communication inflation is still higher in rural India at 3.55% compared to 3.09% in urban India. Even inflation in miscellaneous items is higher in rural areas. However, rural inflation saw lower inflation in most core items like clothing footwear, home goods, healthcare, and education. Personal Care & Effects inflation is more about spike in gold prices.

FOOD BASKET: HOW RURAL AND URBAN INDIA STACKED UP?

Food basket, with a weightage of 47.25%, is a critical swing factor for inflation. In March 2025 food inflation played a key role, tapering to 2.69%.

Food Basket	Food Weights	Rural Inflation	Urban Inflation	Headline Inflation
Cereals and products	12.35	6.08	5.52	5.93
Meat and fish	4.38	0.09	0.71	0.32
Egg	0.49	-3.84	-2.06	-3.16
Milk and products	7.72	2.57	2.56	2.56
Oils and fats	4.21	18.41	14.67	17.07
Fruits	2.88	16.67	15.85	16.27
Vegetables	7.46	-6.30	-8.22	-7.04
Pulses and products	2.95	-2.70	-2.78	-2.73
Sugar and Confectionery	1.70	3.98	3.77	3.89
Spices	3.11	-5.67	-3.37	-4.92
Non-alcoholic beverages	1.37	3.73	4.52	4.01
Prepared meals	5.56	3.57	5.03	4.30
Food Basket	47.25	2.82	2.48	2.69

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 March 2025 was marginally lower at 5.93%. The rural cereals inflation at 6.08% is still higher than the urban cereals inflation at 5.52%.
• What about high protein inflation? Overall protein inflation has sobered in March 2025 for milk, eggs, and meat products; with egg inflation in the negative. The fall in high protein inflation has been sharper in rural areas.
• Vegetables inflation moderated in last 4 months from 26.56% to 11.35%, to -1.07%, and to -7.04% in March 2025. Fall in vegetables inflation was sharper in urban areas. Fruits inflation spiked in last 4 months from 8.49% to 12.22% to 14.82%, to 16.27% in Mar-25.

Not only is headline inflation at a 67-month low, but even food inflation is the lowest in recent memory at just 2.69%.

JUNE MPC MAY AGAIN SEE 25 BPS RATE; UNLESS Q4 GDP SPIKES

RBI has already cut rates by 50 bps from 6.5% to 6.0% in last 2 monetary policies in February and April. Will there be another rate cut in June 2025? With food and headline inflation at low levels of 2.69% and 3.34% respectively; RBI has the luxury of another rate cut. However, there are some other considerations that will come into play. Firstly, if the Q4FY25 GDP to be announced in end of May spikes sharply, the RBI MPC may hold back on rate cuts.

Secondly, there is the possibility that if the rupee gets closer to its recent low of ₹87.5/$, the RBI MPC may hesitate to cut rates as it could weaken the rupee further. Thirdly, if there is a global slowdown likely, the RBI may want to retain its dovish options for a future date. A lot will depend on how GDP numbers manifest, how the global macro risks evolve, and how the rupee behaves vis-à-vis the US Dollar and the Chinese Yuan!