India’s Consumer Price Index (CPI) inflation eased to 4.31% YoY in January 2025 from 5.22% in the previous month. The decline in headline inflation was largely driven by a fall in food inflation to 5.7% YoY in January 2025 from 7.7% YoY in December 2024. However, food inflation remained broad-based, with 41% of items in the food basket witnessing inflation rates surpassing 6%.

Within food, lower contribution from vegetables drove the decline in headline inflation. Vegetable inflation eased to 11.3% YoY in January 2025 from 26.6% YoY in December, on account of a 15.7% MoM price correction.

Core inflation picked up marginally to 3.7% YoY in January 2025. Core inflation and its refined measures have bottomed out because of the revision in mobile tariffs and the increase in gold 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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