India’s retail inflation drops to 5-month low at 4.31% in Jan; IIP grows 3.2% in Dec

In a huge relief to the common man, India's retail inflation rate, based on the All India Consumer Price Index (CPI) for January 2025, eased to a five-month low of 4.31% in January 2025 against 5.22% in December, a decline of 91 basis points in headline inflation, thanks to easing food price rises.

The significant decline in headline inflation and food inflation during January 2025 is mainly attributed to a decline in the inflation of vegetables, eggs, pulses & products, cereals and products, education, clothing and health.

The current inflation marks the lowest year-on-year inflation rate after August 2024, the data shared by the Ministry of Statistics & Programme Implementation (MoSPI) reveals.

At 6.2%, the food inflation in January 2025 also recorded a sharp decline of 237 basis points from 8.39% in December 2024. The corresponding inflation rate for rural and urban are 6.31% and 5.53%, respectively. The decline in headline inflation is a much-needed relief after India's retail inflation had worryingly soared further to a 14-month high of 6.2% in October 2024.

The rural inflation saw a significant decline in inflation at 4.64% in January 2025 on top of the drop in the headline and food inflation, compared to 5.76% in December 2024. The food inflation in rural India dropped to 6.31% in January 2025 from 8.65% in December 2024.

The urban inflation, which has been a cause of concern for the past couple of months, declined from 4.58% in December 2024 to 3.87% in January 2025. A similar decline was observed in food inflation in urban India -- from 7.9% in December 2024 to 5.53% in January 2025.

The ministry data shows housing inflation falling to 2.76% from 2.71% in December 2024; the housing index is compiled for the urban sector only.

Both education inflation and health inflation saw a marginal decline, with education inflation at 3.83% against 3.95% in December 2024, while health inflation dropped to 3.97% from 4.05%.

The ratings agency ICRA estimates the headline CPI inflation to soften to 4.0% in February 2025 from 4.3% in January 2025. "While ICRA’s CPI forecast for FY2026, at 4.2%, is in line with that of the MPC, our GDP growth projection of 6.5% is lower than the committee’s estimate for the fiscal. Looking ahead, ICRA believes that the growth-inflation outlook suggests that there is room for another 25 bps rate cut in either the April or the June 2025 meetings. The exact timing of the same would depend on the incoming data, global developments, and the movements in the USD/INR pair," says Aditi Nayar, Chief Economist, Head - Research & Outreach, ICRA.

The top five items with the highest inflation in January 2025 include coconut oil (54.20%), potato (49.61%), coconut (38.71%), garlic (30.65%), and peas [vegetables] (30.17%). The top five items with the lowest inflation were jeera (-32.25%), ginger (-30.92%), dry chillies (-11.27%), brinjal (-9.94%), LPG (excl. conveyance) (-9.29%).

IIP records growth of 3.2% in December 2024

The Index of Industrial Production (IIP) or industrial production growth rate stood at 3.2% in December 2024, a drop from 5.2% in November 2024, MoSPI data shows.

The Quick Estimates of IIP stands at 157.2 against 152.3 in December 2023, while the growth rates of the three sectors, Mining, Manufacturing and Electricity for December 2024, stood at 2.6%, 3.0% and 6.2%, respectively.

Within the manufacturing sector, 16 out of 23 industry groups recorded positive growth in December 2024 over December 2023.

In terms of the use-base classification, the trend was mixed, with a sequential improvement in primary, capital and intermediate goods, and a dip in infra/construction goods, and consumer durables and non-durables.

The YoY performance of the available high frequency indicators saw a mixed trend in January 2025 vis-à-vis December 2024. " The weak performance of the electricity and mining segments is expected to weigh on the overall IIP growth in January 2025; ICRA expects the same to moderate to ~2.0-3.0% in the month (+4.2% in January 2024) from 3.2% in December 2024 (+4.4% in December 2023)," ICRA says.