India's Core Inflation Outlook Remains Positive Despite Global Pressures The Reserve Bank of India (RBI) had projected Q4 FY25 inflation at 4.4 per cent, but the latest data suggests it could settle at 3.9 per cent.
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India's core inflation outlook remains stable despite rising industrial metal prices, according to a report by ICICI Bank Global Markets. The report indicates that core inflation stayed elevated in February, primarily due to a surge in gold prices. However, steady global edible oil prices and expectations of a normal monsoon suggest a favorable outlook for food inflation in the coming months.
Retail inflation in India fell to a seven-month low of 3.61 per cent year-on-year (YoY) in February 2025, down from 4.26 per cent in January. This decline was driven by a sharp drop in food inflation, which eased to 3.75 per cent annually in February from 6.0 per cent in the previous month. The report attributed the easing to stable weather patterns, a strong rabi crop harvest, and lower energy costs. "A normal monsoon, a stable rupee, and declining energy prices suggest a supportive inflation environment," the report stated.
Despite this positive trend, the outlook remains vulnerable to global market fluctuations. Trade policies, capital flows, and volatile commodity prices could disrupt the inflation trajectory. Fertilizer costs and trade tariffs, in particular, remain potential risks for food prices. Additionally, while vegetable prices may rise during the summer, the high base effect from last year is expected to prevent a significant spike in overall food inflation.
The anticipated increase in rabi crop output, especially in wheat and cereals, is expected to keep food inflation moderate over the next year. However, edible oils and sugar prices could face upward pressure due to global market trends and lower sugarcane production. "Global market factors like trade tariffs and volatile fertilizer costs may influence food prices," the report noted.
Core inflation, which excludes food and fuel, is expected to remain contained despite the rise in industrial metal prices. A stable Indian rupee and weak global energy demand are helping to keep core inflation in check. Oil prices fell in March due to increased production from OPEC and reduced energy consumption in the United States, easing energy-related inflationary pressures.
The Reserve Bank of India (RBI) had projected Q4 FY25 inflation at 4.4 per cent, but the latest data suggests it could settle at 3.9 per cent. This gives the central bank room to consider an interest rate cut in April. "With inflation coming in below the RBI's Q4 projection, the Monetary Policy Committee (MPC) could opt for a policy rate cut next month," the report highlighted.
For FY26, inflation is predicted to average 4.2 per cent YoY, aligning with the RBI's long-term target. A balanced demand-supply outlook and supportive external conditions could keep inflation within the central bank's comfort zone.
