Every eye has been on the recent inflation data for February 2025, and to everyone’s surprise, India’s inflation rate finally dipped to 3.61%, which is even lower than what the RBI expected. This has been all due to the cooling food, especially the vegetable prices, which were soaring high in the previous month, even when other aspects of inflation were easing. RBI has a 4% target, and this is after almost a year, when the inflation came down below the target. It is also the lowest since July 2024. 

Food Inflation Playing Pivotal Role

Food inflation was driving the overall CPI higher in the previous months, and it coming down to 3.75% within which the vegetable prices dropped by 1.07% YoY is something significant which played a pivotal role in bringing down overall inflation. It was just in January 2025, when the vegetable prices soared 11.35%, driving inflation high. It is not only the veggies but the pulses also witnessed a drop in the prices by 0.35% in February 2025, compared to a rise of 2.59% in January 2025. Price of cereals and similar products dipped to 6.1% against 6.24% of January 2025. 

Is this temporary?

As per analysts of Bank of America, these easing in the vegetable prices may not last long as the harsh weather conditions, heatwave, which has already started in different parts of the country, can again drive the prices upward, even that can start in March itself. While vegetable prices started easing from October, but this is the first month when India’s CPI dipped below the actual target of RBI, but this may not last long. 

Rate Cut Expectations and Growth 

As the inflation rate in India has been cooling down, all eyes are now on the RBI to see whether it will cut the repo rate further and to what extent. It took five years for slashing 25 bps of the rate in the previous month as inflation was holding strong earlier. 

However, the analysts are expecting a series of rate cuts by RBI in this calendar year, which can bring the repo rate down by 100 bps, including the February’s 25 bps cut. 

This cut in the repo rate also came with a dip in the country’s growth. GDP growth in the fourth quarter of FY25 is expected only at 6.2%. If you see annually, then the nation only would grow 6.5% in FY25 compared to 9.2% in FY24. 

IIP At 8-month High

Even though the overall GDP is expected to be lower in the fourth quarter, the Industrial production in the country measured by Index of industrial production (IIP) has surged to an 8-month high in January 2025. It has touched 5% in January 2025 against 3.5% in December 2024. 

Manufacturing and mining pivoted the growth of IIP in January. The manufacturing industry grew 5.5% during the month compared to 3.4% growth in December 2024, while mining grew by 4.4% compared to 2.7% growth registered in December 2025. The electricity, though, grew moderately during the period. It grew only 2.4% while in December it grew by 6.2%. This has limited the overall IIP growth to some extent.  

Global & Domestic outlook 

While analysts are predicting rate cuts, but the RBI is concerned about the global outlook, which seems challenging at this point. The geopolitical turmoil is still hovering and uncertainties within policy making are still there, making the market volatile. The tariff war is another thing making the market volatile, and making the dollar stronger, which is in turn putting pressure on emerging markets’ currencies, including the Indian Rupee. 

It is not only the global markets that are in uncertainties, but the domestic market also depicts the same to some extent. The growth in IIP is limited to January, as for the whole year, India’s manufacturing sector was sluggish. Similarly, the easing inflation due to vegetable prices can again soar with the soaring temperatures. So, the economy is in a state of dilemma, and uncertainties, and thus, as investors you need to be cautious about every move of yours. 

Source: MoneyControl

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