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Retail inflation eases to 3.34%, lowest since 2019

Context :

  • Retail inflation (CPI) fell to 3.34% in March 2025, the lowest since late 2019.
  • The drop was driven by falling food prices, particularly vegetables, pulses, and eggs.
  • Rural inflation fell to 3.25%, while urban inflation rose slightly to 3.43%.
  • Consumer Food Price Inflation declined sharply to 2.7%, from 3.75% in February.
  • Fuel and light inflation rose marginally to 1.48%, marking the first price rise since Sep 2023.
  • State-wise variation:
    • Highest inflation: Kerala (6.6%)
    • Lowest inflation: Delhi (1.5%), Telangana (1.1%)

Relevance : GS 3(Indian Economy)

Policy and Monetary Context

  • The decline follows two recent RBI repo rate cuts (each by 25 bps).
  • Indicates monetary policy easing is yielding results, without triggering inflation.
  • Analysts expect inflation to stay below 4%, creating space for a further 50 bps repo rate cut.

Implications

  • Boosts household purchasing power, especially in rural areas.
  • Signals macroeconomic stability and room for growth-focused policy.
  • Could stimulate consumption and investment, given lower interest rates.
  • Positive sentiment for bond and equity markets due to lower inflation expectations.

Implication:

Inflation Management

  • Reflects effectiveness of inflation-targeting framework (RBI’s 4±2% band).
  • Emphasizes food price volatility’s role in retail inflation—a persistent issue in India.

Monetary Policy & Growth Trade-off

  • Shows a pro-growth bias of RBI amid global disinflationary trends.
  • Highlights the delicate balance between stimulating demand and maintaining price stability.

Sectoral Impact

  • Agriculture: Lower food inflation might hurt farmer incomes despite consumer benefit.
  • Manufacturing & MSMEs: May benefit from rate cuts, improving credit access.
  • State-level divergence: Calls for granular inflation management, considering regional disparities.

Broader Macroeconomic Linkage

  • May aid in current account control if rate cuts improve competitiveness.
  • Needs alignment with fiscal policy and supply-side measures for sustainable inflation control.

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