India’s Consumer Price Index (CPI) inflation eased to 3.34% YoY in March 2025 from 3.61% in the previous month. The decline in headline inflation was largely driven by a fall in food inflation to 2.9% YoY in March 2025 from 3.8% YoY in February 2025. Food inflation is no longer as broad-based, with 34% of food items witnessing greater than 6% inflation, down from 45% in December 2024.

Within food, a lower contribution from vegetables drove the decline in headline inflation. Vegetable inflation eased to -7.0% YoY in March 2025 from -1.1% YoY in January, on account of a 5.7% MoM correction in vegetable prices.

Core inflation (which excludes food and fuel) picked up to 4.20% YoY from 4.08% in the previous month, on account of an unfavourable base and ongoing increases in gold & silver prices.

We expect inflation to align with the 4% target in FY26. The outlook for food inflation remains favourable, with advance estimates indicating healthy rabi production and the IMD’s forecast of an above-normal monsoon in 2025. This positive inflation outlook, coupled with increasing growth risks, supports the case for further monetary easing.

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