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Inflation in India

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Context:

This further diminishes consumer price inflation in India to 4.3% in January, close to the 4% target of the Reserve Bank of India (RBI) on a highly favourable winter harvest of vegetables. For cities, it has receded to 3.9%, while rural inflation touches 4.6%, giving much needed relief to households. Imported inflations, edible oils price hikes, and depreciation of currency hold the risks to this progress, though.

Key Highlights:

Inflation Patterns & Reaction by RBI

  • From 4.3% in January, the consumer inflation reaches its five month lowest point.
  • Food inflation has dropped to 6, relieving household budgets.
  • The latest interest rate cut from the RBI anticipates an eventual sharp decline in inflation.
  • The central bank expects inflation to average 4.4% this quarter and 4.2% in 2025-26.

Rural Among Urban Inflation

  • Urban inflation: At 3.9%, still well below the national average.
  • Rural inflation: 4.6% but markedly lower than earlier months.
  • With the rising prices finally loosening their grips upon the urban middle class, consumption and economic growth should gradually resume activity.

Risks Concerning the Stability of Inflation

  • Rupee Depreciation
    • Rupee has lost nearly 4% value against the dollar in the latter half of 2024-25, thereby increasing the cost of imports.
  • Imported inflation threats
    • Escalating fuel and edible oil prices with 60% of India’s edible oil demand being met through imports.
  • Edible oils rose by 15.6% in January, the highest surge in nearly three years, characterized by wholesale prices jumping by 33.1% point and signaling further retail price surges.
  • Possible weather shocks (for example summer heatwaves or a weak monsoon) could reverse most gains made in food prices.

Policy & Government Measures

  • The finance minister Nirmala Sitharaman was confident that food prices will remain under control in 2025.
  • To mitigate price pressures, the government should consider indirect tax reductions which would include:
  • Fuel levies to ease commuting costs.
  • Import duties to manage edible oil prices.
  • GST cuts to benefit citizens across income levels.

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