CPI Inflation Stays Below RBI Aim, Core Stays Out

India’s retail inflation eased to 3.34% in March, the lowest since August 2019, mainly due to a fall in food prices. This marks the second consecutive month that inflation has remained below the Reserve Bank of India’s medium-term target of 4%. Retail inflation was at 3.61% in February.

The decline strengthens the case for a third consecutive cut in the policy rate, especially following last week’s change in the monetary policy stance to 'accommodative' from 'neutral'.

Core inflation, however, exceeded the headline number for the second straight month. A quick estimate pegs core inflation—which excludes food and fuel—at 4.1% in March, up from 4.0% in February.

A section within the government has previously advocated for the Monetary Policy Committee to shift its focus toward core inflation rather than the headline CPI.

Retail food inflation fell to 2.69% in March from 3.75% in February, mainly due to a 4.95% drop in egg prices and a 5.69% decline in vegetable prices. The pulses and products index also fell 2.92%. However, a 3.15% rise in fruit prices limited the overall decline in food inflation.

Last week, the MPC cut the repo rate by 25 basis points for the second straight time and also changed its stance to accommodative. It pared its average inflation forecast for 2025–26 by 20 basis points to 4%. The easing was led by significant downward revisions for the first half of 2025–26. The estimates for October–December were kept unchanged at 3.8%, while the number for January–March quarter was revised upward to 4.4% from 4.2%, suggesting potential late-year price pressures.

RBI Governor Sanjay Malhotra highlighted a “decisive improvement in the inflation outlook supported by a sharp fall in food prices”.