India’s CPI inflation eased to 4.31% dropping significantly from 5.22% in December 2024. The overall deceleration of 91 bps is primarily due to a sequential seasonal fall in prices of vegetables, pulses, and eggs. The continuation of favourable winter seasonality is expected to moderate food inflation further in the coming 2 months.

Signals from daily mandi prices suggest that key vegetable prices have further softened in Feb-25, albeit by a lesser degree. They are now showing signs of bottoming out. For example, TOP (Tomato, Onion, and Potato) prices are tracking a decline of 9-23% on a monthly average basis in Feb-25 so far. The near-term impact of this is likely to manifest further moderation in food and beverages inflation, which in turn could push headline CPI inflation to under 4% levels in Feb-25 and Mar-25. Acuite Rating and Research predicts average CPI inflation in FY25 to reach around 4.8%.

Within food baskets edible oils increased by 15% compared to -9% in the corresponding period in 2024. This is due to the persistently depreciating rupee value. Indian rupees fall to 86.88 against the dollar, weakening 5% since April 2024 and 22.36% in the last five years. For perspective, edible oils are import items depreciating rupees will lead to an increased value of edible oils. Core inflation is hovering around 4.0% YoY in Jan-25 from 3.9% in Dec-24.

“Core inflation has shown only a marginal uptick and is not currently a worry for policymakers. Looking ahead, rabi sowing has been as per expectations and vegetable prices have continued to drop further in Feb’25, which should help keep the headline inflation in check for the coming two months. While the disinflation trend is a positive development and has enabled RBI to go for the rate cut, the rise in prices of edible oils along with other imported goods which have been hit by the significant rupee depreciation, along with the potential global trade war, will be monitor ables,” says Suman Chowdhury Chief Executive and Economic Director at Acuite Ratings and Research.

On the other hand, the rapid depreciation of the rupee is a grave concern, according to forex trader’s Indian rupee is trading on a negative bias as foreign banks are on dollar buying spree. The 5 per cent rupee depreciation since April 2024 has increased the rupee equivalent of debt repayment for companies with external commercial borrowings. Moreover, as per the RBI estimates, a 5 per cent rupee depreciation adds 35 bps to headline inflation. Coupled with the tariff hikes under the Trump presidency increased the risk. With a $45.7 billion trade surplus and a hefty 39% duty on US agricultural imports, India may need to make concessions to avoid retaliatory measures.