Inflation Rate in India 2025 – Trends, Drivers, and Outlook for 2025

Inflation Rate in India 2025 – Inflation, the rate at which the general level of prices for goods and services rises, is a critical economic indicator that affects purchasing power, cost of living, and monetary policy in India. As the world’s fifth-largest economy, India’s inflation dynamics are closely monitored by policymakers, businesses, and consumers alike. Managed primarily by the Reserve Bank of India (RBI) under its Flexible Inflation Targeting Framework (FITF), India’s inflation rate has experienced significant fluctuations in recent years, driven by domestic and global factors. 

Let's explores the current state of inflation in India as of April 2025, its key drivers, historical trends, policy responses, and projections for the future.

toc=#(table of content)

Understanding Inflation in India 2025

Inflation is measured in India using two primary indices:

• Consumer Price Index (CPI): Tracks retail inflation by measuring price changes in a basket of goods and services consumed by households, including food, housing, fuel, and healthcare. The CPI is the RBI’s primary gauge for monetary policy, targeting a 4% inflation rate with a ±2% tolerance band (2%–6%).
• Wholesale Price Index (WPI): Measures price changes at the wholesale level for goods like raw materials, fuels, and manufactured products. While less consumer-focused, it reflects supply-side price pressures.

Inflation impacts purchasing power, savings, investment decisions, and economic stability. Moderate inflation can drive consumption and growth, but high or volatile inflation erodes affordability and disrupts planning. 

In India, food prices, which constitute nearly half of the CPI basket, play an outsized role in inflation trends due to the country’s large population and reliance on agriculture.

How to Calculate Inflation Rate in India

The inflation rate in India is calculated using the Consumer Price Index (CPI), which measures price changes in a basket of goods and services. Here’s a concise guide:

1. Select the CPI Data:
   • Obtain CPI values for two time periods (e.g., current month and same month last year) from the Ministry of Statistics and Programme Implementation (MoSPI) or RBI.
2. Apply the Inflation Formula:
   
   
   
   • CPI_current: CPI for the current period (e.g., March 2025).
   • CPI_previous: CPI for the previous period (e.g., March 2024).
3. Example Calculation:
   • If CPI in March 2025 is 145.2 and CPI in March 2024 was 140.5:
     
4. Key Notes:
   • CPI includes categories like food, housing, fuel, and clothing, with food having a high weight (~46%).
   • Inflation is reported monthly, with year-on-year (YoY) comparisons being standard.
   • The RBI targets a CPI inflation rate of 4% (±2%).

This method provides the headline retail inflation rate used by policymakers and analysts in India.

Current Inflation Trends (April 2025)

As of March 2025, India’s CPI-based retail inflation has significantly moderated, reaching 3.34% year-on-year (YoY), down from 3.61% in February 2025 and well below the RBI’s 4% midpoint target. 

This marks the lowest inflation rate since August 2019 and reflects a fifth consecutive month of decline. Key highlights include:

• Food Inflation: Dropped to a near four-year low of 2.69% in March 2025 from 3.75% in February, driven by deflationary pressures in eggs, spices, vegetables, and pulses. Food and beverages, which account for 46% of the CPI basket, have been a major factor in the overall slowdown.
• Fuel and Light: Prices rebounded to 1.48% YoY from -1.33% in February, reflecting volatility in global energy markets.
• Housing: Inflation rose slightly to 3.03% from 2.91%, indicating steady demand in urban areas.
• Core Inflation: Estimated at 4.1% in March, core inflation (excluding volatile food and fuel components) remains above headline inflation, signaling persistent demand-side pressures.
• Month-on-Month (MoM): Consumer prices fell by 0.26% in March, continuing a trend of five consecutive monthly declines.

Wholesale inflation, based on the WPI, also eased to 2.05% in March 2025, the lowest in six months, reflecting softening commodity prices and improved supply chains.

Inflation Rate in India for the Last 5 Years and Recent Trends

India’s inflation rate has been volatile over the past decade, influenced by domestic supply shocks, global commodity prices, and policy measures. Below is a snapshot of recent years:

• 2020: CPI inflation averaged 6.62%, driven by supply chain disruptions during the COVID-19 pandemic.
• 2021: Inflation moderated to 5.13% as supply chains stabilized.
• 2022: Inflation surged to 6.70%, fueled by global energy price spikes and monsoon-related food price pressures.
• 2023: Inflation eased to 5.36%, supported by softening global commodity prices and RBI’s tight monetary policy.
• 2024: Inflation fluctuated, peaking at a 14-month high of 6.21% in October due to food inflation (10.87%), before declining to 5.22% in December.

The sharp decline in inflation since late 2024 reflects several factors:

• Falling Food Prices: A significant drop in vegetable prices (from 11.35% YoY in January to -1.07% in February 2025) and seasonal corrections in cereals, sugar, and pulses have eased food inflation.
• Improved Agricultural Output: Favorable monsoon harvests and robust winter crop yields have bolstered food supply, reducing price pressures.
• Global Commodity Trends: Softening global oil and commodity prices have lowered input costs, reflected in both CPI and WPI.
• RBI’s Policy Actions: The RBI’s proactive monetary policy, including repo rate cuts in February and April 2025, has supported disinflation while addressing growth concerns.

Key Drivers of Inflation in India 2025

India’s inflation is influenced by a mix of supply-side, demand-side, and external factors:

1. Food Prices:
   • Food inflation is a primary driver due to its high weight in the CPI basket. Weather-related disruptions (e.g., monsoons, droughts) and supply chain inefficiencies often cause price spikes in vegetables, pulses, and cereals.
   • In 2024, vegetable inflation peaked at 42.18% in October but fell sharply by March 2025 due to seasonal corrections and improved supply.
2. Global Commodity Prices:
   • India’s reliance on imported oil and raw materials makes it vulnerable to global price volatility. For instance, fuel and light inflation turned positive in March 2025 after months of deflation.
   • A depreciating rupee (reaching 87.59 against the USD in February 2025) can exacerbate imported inflation.
3. Demand-Side Pressures:
   • Rising consumer spending, particularly in urban areas, contributes to core inflation, as seen in housing and personal care products.
   • Fiscal measures like income tax relief in the FY26 Union Budget have boosted disposable income, potentially increasing demand.
4. Supply Chain and Production Costs:
   • Disruptions in logistics, labor shortages, or rising input costs (e.g., fertilizers, fuel) can push up prices, particularly for manufactured goods.
   • The WPI’s decline to 2.05% in March 2025 indicates easing supply-side pressures.
5. Monetary and Fiscal Policies:
   • The RBI’s repo rate adjustments directly influence borrowing costs and money supply. Rate cuts in 2025 have supported disinflation while stimulating growth.
   • Government measures, such as reducing excise duties on fuel or import duties on edible oils, have helped curb inflation in the past.

RBI’s Monetary Policy Response

The RBI has played a central role in managing inflation through its monetary policy, guided by the FITF and the Monetary Policy Committee (MPC). Key actions in 2024–2025 include:

• Repo Rate Adjustments:
  • After maintaining the repo rate at 6.5% for 11 meetings, the RBI cut it by 25 basis points (bps) to 6.25% in February 2025, followed by another 25 bps cut to 6% in April 2025, reflecting confidence in declining inflation and the need to support growth.
  • These cuts, the first since May 2020, have lowered borrowing costs, boosting consumption and investment.
• Neutral to Accommodative Stance:
  • The MPC adopted a neutral stance in October 2024 and shifted to accommodative in April 2025, signaling a focus on growth while monitoring inflation.
• Liquidity Management:
  • A 50 bps cut in the Cash Reserve Ratio (CRR) to 4% in December 2024 released ₹1.16 trillion in liquidity, easing credit constraints.
  • Open Market Operations (OMOs) and repo auctions have addressed liquidity deficits caused by tax outflows and forex interventions.
• Forex Interventions:
  • The RBI has intervened to stabilize the rupee, which hit a low of 87.59 against the USD, to mitigate imported inflation risks. India’s forex reserves of $630.6 billion (January 2025) provide a robust buffer.

The RBI’s inflation forecast for FY25 (ending March 2025) is 4.8%, with projections for FY26 at 4%, supported by softening food prices and favorable agricultural output.

Impact of Inflation on Stakeholders

The current low inflation environment has wide-ranging implications:

• Consumers:
  • Lower inflation (3.34% in March 2025) enhances purchasing power, particularly for essentials like food, which saw inflation drop to 2.69%.
  • Reduced borrowing costs due to repo rate cuts lower EMIs for loans, boosting affordability for homes and vehicles.
• Businesses:
  • Easing wholesale inflation (2.05%) reduces input costs, improving profit margins for manufacturers and retailers.
  • Lower interest rates encourage investment and expansion, particularly in real estate and infrastructure.
• Savers:
  • Low inflation and falling interest rates may reduce returns on savings accounts and fixed deposits, prompting savers to explore alternative investments.
• Stock Markets:
  • Moderating inflation and rate cuts have boosted market sentiment, though persistent global uncertainties (e.g., U.S. tariffs) could temper gains.
• Government and RBI:
  • Inflation below the 4% target provides the RBI with room for further rate cuts (potentially 50–100 bps in FY26), supporting growth.
  • Fiscal measures like tax relief complement monetary policy, driving consumption and economic activity.

Challenges and Risks

Despite the positive trend, several risks could disrupt India’s inflation outlook:

1. Food Price Volatility:
   • Adverse weather, such as unseasonal rains or droughts, could reverse gains in food inflation, given its sensitivity to agricultural output.
   • Prices for specific items like peas, potatoes, and garlic remain elevated, posing localized risks.
2. Global Uncertainties:
   • U.S. tariff hikes and geopolitical tensions could disrupt global trade, increasing commodity prices and imported inflation.
   • A depreciating rupee could raise costs for imported goods, particularly oil.
3. Core Inflation Pressures:
   • Core inflation at 4.1% indicates persistent demand-side pressures, particularly in housing and services, which could limit further disinflation.
4. Monetary Policy Transmission:
   • Incomplete pass-through of rate cuts by banks, due to high deposit costs, could weaken the impact of RBI’s easing measures.
5. Climate Risks:
   • Climate-related disruptions to agriculture could exacerbate food inflation, challenging the RBI’s projections.

Projections and Future Outlook

Analysts and institutions project a stable inflation outlook for India:

• RBI Forecast: Expects CPI inflation to average 4.8% for FY25 and 4% for FY26, driven by stable food prices and global disinflation.
• Centrum Institutional Research: Predicts FY25 inflation at 4.8%, with room for a 25 bps rate cut if trends persist.
• Bank of America: Anticipates 100 bps of rate cuts by end-2025, bringing the repo rate to 5.5%, as inflation aligns with the RBI’s 4% target.
• IMF Projections: Forecast inflation at 4.4% in 2025, declining to 4.1% by 2029, reflecting structural improvements in supply chains and monetary policy.

Key factors supporting this outlook include:

• Agricultural Resilience: Strong rabi crop yields and adequate cereal buffer stocks are expected to keep food inflation in check.
• Global Disinflation: Softening commodity prices and easing global supply chain pressures will reduce imported inflation.
• Policy Coordination: Synergy between RBI’s monetary easing and fiscal measures like infrastructure spending will balance growth and inflation.

However, vigilance is needed to address risks from global trade disruptions, rupee depreciation, and climate shocks. The RBI’s data-dependent approach, supported by its neutral-to-accommodative stance, ensures flexibility to respond to emerging challenges.

Comparison with Global Trends

India’s inflation rate of 3.34% in March 2025 is notably lower than many global peers:

• United States: Inflation moderated to around 3% in early 2025, supported by the Federal Reserve’s rate cuts (4.5%–4.75% target range).
• Eurozone: Inflation hovered around 2%–2.5%, with the European Central Bank easing rates to support growth.
• Emerging Markets: Countries like Brazil and South Africa face higher inflation (4%–6%), driven by currency depreciation and commodity dependence.

India’s ability to maintain inflation below its 4% target, coupled with robust forex reserves ($630.6 billion), positions it favorably among emerging markets. However, global tariff wars and a strong U.S. dollar could challenge this stability.

Conclusion

India’s inflation rate has entered a favorable phase in 2025, with CPI inflation dropping to a six-year low of 3.34% in March, driven by declining food prices, improved agricultural supply, and supportive monetary policy. 

The RBI’s strategic rate cuts (to 6% in April 2025) and shift to an accommodative stance reflect confidence in sustained disinflation while addressing growth concerns. 

With inflation projected to stabilize at 4%–4.8% in FY26, India is well-positioned to balance economic growth with price stability.

However, risks from global trade tensions, rupee depreciation, and climate-related disruptions require proactive monitoring. 

The RBI’s data-driven approach, combined with fiscal measures, will be crucial in sustaining this positive trajectory. 

For consumers, businesses, and policymakers, the current low-inflation environment offers opportunities to boost consumption, investment, and inclusive growth, reinforcing India’s resilience in a challenging global landscape.