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India’s Inflation Rate Falls to 3.61% in February Amidst Cooling Vegetable Prices

India’s inflation rate has reported a surprising decline to 3.61% in February, according to the Ministry of Statistics and Programme Implementation. This figure comes as a relief to the nation, particularly as it falls below the Reserve Bank of India’s (RBI) target of 4% for the first time since last summer.

Economists, who had anticipated a slightly higher inflation rate of 3.98%, are observing this as the lowest monthly inflation figure since July 2024. The decrease is significant as it reflects broader changes in the pricing of essential food items within the Consumer Price Index (CPI).

Food inflation, a crucial element affecting the CPI, stood at 3.75% for February, with vegetable prices seeing a notable decrease of 1.07% year-on-year, reversing an 11.35% increase observed in January. Additionally, the prices of pulses dropped by 0.35%, contrasting with a 2.59% rise in the preceding month.

While the cost of cereals and related products remained relatively stable, easing slightly to 6.1% from January’s 6.24%, the overall trend indicates a tempering of inflationary pressures in food sectors.

Bank of America analysts noted on March 5 that the decline in vegetable prices is primarily attributable to increased supply, particularly for staples like potatoes and tomatoes. However, they caution that there may be a reversal of this trend as early as March due to potential risks such as heatwaves and weather impacts on agriculture.

This inflation data follows reports of India’s GDP growth, which came in at 6.2% for the fourth quarter, just shy of market expectations. For the financial year ending March 2025, growth forecasts are around 6.5%, a marked deceleration from the previous year’s 9.2% rise.

Analysts from Bank of America have indicated a shift in the country’s monetary policy, stating that the focus has now turned firmly towards fostering economic growth. They project medium-term inflation levels to stabilize around the RBI’s 4% target, anticipating a total of 100 basis points in rate cuts by the end of 2025. This includes a recent 25-basis-point cut enacted in February, bringing the expected repo rate to approximately 5.50%, a figure seen as aligning with neutral economic conditions.

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