March retail inflation falls to over 5-year low of 3.3%

India's retail inflation declined to 3.3% year-on-year in March, lowest since August 2019, driven by a fall in food prices, official data released Tuesday showed. This marks a drop from 3.6% in February and the second straight month of inflation remaining below the Reserve Bank of India's (RBI) 4% target.

The decline follows the RBI's monetary policy committee (MPC) decision to cut the policy rate by 25 basis points to 6%. Experts anticipate additional rate cuts this year, potentially bringing the repo rate down to 5.50%.

"The high base effect has helped to moderate the inflation numbers and this comfort will be there for the next 3-4 months," said Madan Sabnavis, chief economist at Bank of Baroda.

On a fiscal year basis, inflation declined to 4.6% in FY25 from 5.4% in FY24.

Last week, the central bank revised its inflation forecast for FY26 to 4% from 4.2% earlier.

"Sustained seasonal correction in food prices led to the moderation in headline inflation in March. The declining trend, however, was not uniform as fuel & light and core inflation saw an upswing in the same period," said Paras Jasrai, associate director at India Ratings and Research (Ind-Ra).

Fuel & light inflation stood at 1.5% in March year-on-year.

While rural inflation fell to 3.3% in March from 3.8% in February, inflation in urban areas rose to 3.4% from 3.3% in the same period.

Among the 36 states and Union Territories, Kerala recorded the highest inflation of 6.6%, followed by Karnataka (4.4%), Chhattisgarh (4.3%), Jammu & Kashmir (4%) and Maharashtra (3.9%).

"There are signs of demand picking up as reflected from the rising core inflation," noted Jasrai.

Core inflation rose to a 16-month high of 4.1% year-on-year in March.

"This was driven by increases in precious metals, transport and education," said Radhika Rao, executive director and senior economist at DBS Bank.

Food, services
Food inflation dropped to over a three-year low of 2.7% in March. Overall, it eased to 7.3% in FY25 from 7.5% in FY24.

"Food inflation fell in March due to corrections in prices of vegetables and pulses," said Jasrai.

Vegetable inflation declined by 7% year-on-year in March, while pulses prices were down by 2.7%.

"A rise in temperatures going ahead could raise prices of perishables in the coming weeks. While the initial forecast of an above normal monsoon is encouraging, the timing and distribution will be key for the implications for agricultural output and food inflation going ahead," said Aditi Nayar, chief economist at ICRA.

Oils and fats saw the steepest rise among food items at 17.1%. Next was fruits at 16.3%.

"Edible oil will continue to exert pressure as it is determined by international prices as well as exchange rate," said Sabnavis.