Mumbai, May 29: The Reserve Bank of India (RBI) has expressed optimism about aligning headline inflation with its 4.0% target over the next 12 months, buoyed by easing food prices and supportive economic conditions.
In its Annual Report released on Thursday, the central bank noted that inflation fell below the target in both February and March 2025, primarily due to a significant drop in food inflation. This trend has strengthened confidence in achieving sustained price stability.
“With inflation falling below the target in February and March 2025, supported by a sharp fall in food inflation, there is now greater confidence about a durable alignment of headline inflation with the target of 4.0 per cent over a 12-month horizon,” the RBI said.
Headline inflation, which includes all components of the Consumer Price Index (CPI)—including volatile items like food and fuel—averaged 4.6% in 2024-25, down from 5.4% in the previous year. The decline was driven by:
Core inflation (CPI excluding food and fuel) easing to 3.5%
A 2.5% decline in fuel prices
A steep fall in food inflation, which dropped from 9.7% in October 2024 to 2.9% in March 2025
However, the RBI did flag a rise in core inflation in the latter half of the year, mainly due to rising international gold prices.
Outlook for 2025–26
The RBI's inflation outlook for 2025–26 remains positive, citing several tailwinds:
Softening global commodity prices
Improved supply chain conditions
Expectations of a robust agricultural output following an above-normal south-west monsoon
On the global front, inflation declined to 5.7% in 2024 from 6.6% in 2023, and is projected to fall further to 4.3% in 2025 and 3.6% in 2026, thanks to gradual monetary tightening and better supply dynamics.
Despite this, the RBI warned of persistent risks that could disrupt price stability and economic growth. These include:
Elevated services inflation in some regions
Rising trade tariffs, particularly in the U.S.
Uncoordinated global monetary policies
Geopolitical tensions, financial market volatility, and climate-related shocks
Potential supply disruptions and trade fragmentation
The central bank emphasized that while the current inflation environment is benign, monetary policy should remain supportive of growth—but with caution in light of the unpredictable global landscape.
(With agency inputs)
