India’s Consumer Price Index (CPI) inflation eased to 3.61% YoY in February 2025 from 4.26% in the previous month. The decline in headline inflation was largely driven by a fall in food inflation to 3.8% YoY in February 2025 from 5.7% YoY in January 2025. Food inflation is no longer as broad-based, with 35% of food items witnessing greater than 6% inflation, down from 41% in January 2025.

Within food, lower contribution from vegetables drove the decline in headline inflation. Vegetable inflation eased to -1.1% YoY in February 2025 from 11.3% YoY in January, on account of a sharp 11.2% MoM price correction.

Core inflation (which excludes food and fuel) picks up to 4.05% YoY from 3.76% in the previous month, on account of higher gold and silver prices.

We expect inflation to align with the 4% target in FY26. The food inflation outlook appears favourable, supported by healthy kharif production and encouraging prospects for the rabi season. We expect RBI MPC to cut rates by another 50–75 bps in the current easing cycle to support growth.

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