India’s retail inflation cooled to a five-year low of 3.34% in March, driven by softening food prices.

India’s retail inflation dropped to a five-year low of 3.34% in March 2025, marking the sharpest disinflationary trend since September 2019. This sustained cooling, primarily driven by subdued food prices, offers significant respite to consumers amid global economic uncertainty. Not only did headline CPI inflation fall comfortably within the Reserve Bank of India’s (RBI) 2–6% tolerance band, but it also stayed below the central bank’s ideal target of 4%. The drop has reignited conversations around RBI’s future rate policy, especially as the country braces for potential external shocks, including global tariff tensions and weather-linked disruptions.

March Inflation Overview: Softening Pressures Across the Board

India’s March inflation print revealed a sharper-than-expected cooling, with food inflation dropping significantly to 2.69% from 3.75% in February, largely driven by a steep 7.04% contraction in vegetable prices compared to -1.07% a month earlier. Fuel and light inflation also moderated to 1.48%, while cereals remained sticky at 5.93%, and pulses surprisingly saw a 2.73% contraction. The rural-urban divide showed a consistent disinflationary trend, with rural inflation easing to 3.25% from 3.79% and urban inflation falling more sharply to 2.48% from 3.32%.
These figures came in well below market expectations, with a Reuters poll of 40 economists conducted between April 3–8 projecting March inflation at 3.60%, underscoring the surprising scale of the decline in food prices.

Food Inflation – The Primary Driver of Disinflation

Food items, which make up nearly 50% of India’s Consumer Price Index (CPI) basket, continue to drive headline inflation trends due to their sheer weight in the index. A striking example of this influence is the dramatic turnaround in vegetable inflation, which had spiked to 42.4% year-on-year in October 2024, but has since cooled to a deflationary -7.04% in March 2025—signaling strong supply-side corrections, improved logistics, and healthy rabi crop arrivals.
While cereal inflation remains a concern at 5.93%, it marks a notable improvement from the 7–8% range seen in Q3 FY25. Pulses, a vital protein source for millions, posted a rare contraction of -2.73%, likely due to a combination of improved domestic harvests and higher imports. Meanwhile, oil and fats inflation stayed muted, thanks to globally stable edible oil prices. Spices, fruits, and dairy products displayed mixed trends, but none witnessed the alarming spikes observed during mid-2024.
Overall, the food inflation trajectory has reversed dramatically—plunging from 10.9% in October 2024 to just 2.69% in March 2025—making it one of the steepest six-month disinflationary phases in over a decade.

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Rural-Urban Inflation Dynamics: City Costs Cool Sharply

The urban-rural inflation gap widened notably in March 2025, though both segments continued their downward trajectory.
Urban Consumer Price Index (CPI) inflation dropped sharply to 2.48%, from 3.32% in February, driven by moderating service sector costs and relatively stable fuel prices across metropolitan areas. In contrast, rural CPI eased to 3.25% from 3.79%, largely on account of cooling food prices and subdued fuel inflation in non-urban zones.
This divergence highlights the shifting cost dynamics across consumer segments—especially when compared to October 2024, when urban inflation stood at a steep 6.8% and rural at 5.9%.
The overall inflation landscape was further supported by a decline in core inflation (excluding volatile food and fuel components), which dipped below 4% for the first time in more than 18 months.
This marked decline in underlying inflationary pressures offers the Reserve Bank of India (RBI) greater policy flexibility and strengthens the argument for a potentially more accommodative stance in future monetary reviews.

RBI’s Monetary Policy Outlook: Rate Cut Hopes Rekindled?

In its most recent monetary policy announcement, RBI Governor Sanjay Malhotra highlighted the sustained downtrend in inflation as a “welcome and broad-based” development, indicating growing confidence in the trajectory of price stability.
The central bank retained its inflation forecast for FY26 at 4%, emphasizing that risks remain “evenly balanced.” A closer look at the quarterly projections reveals downward revisions in early FY26: Q1 inflation is now expected at 3.6% (down from 4.5% earlier), Q2 at 3.9% (slightly down from 4.0%), while Q3 and Q4 are pegged at 3.8% and 4.4%, respectively.
This moderation follows an FY25 average inflation of 4.6%, already a notable improvement from 5.4% in FY24. While the RBI reaffirmed its commitment to a “withdrawal of accommodation” policy stance to anchor inflation expectations, speculation over potential rate cuts has grown as disinflation gains momentum.
Still, the RBI remained cautious, warning of possible external shocks — including tariff actions from the US, climate-related supply disruptions, and the lingering effects of El Niño — that could threaten the inflation outlook and require a recalibration of its current stance.

Read More: RBI Cuts Repo Rate To 6% Amid Global Uncertainty, Shifts To Accommodative Stance

Global Headwinds: Tariffs & Trade Tensions Could Reverse Trend

India’s inflation outlook, though currently optimistic, is increasingly clouded by emerging global headwinds particularly from abrupt shifts in US trade policy.
On April 2, US President Donald Trump implemented a sweeping 26% import duty on all Indian goods as part of his aggressive “reciprocal tariffs” agenda.
While a temporary 90-day pause was granted from April 9 for most countries, excluding China, the base 10% tariff remains intact, adding underlying pressure.
Moreover, the threat of additional 25% auto tariffs and restrictive non-tariff barriers continues to loom large over India’s export-driven sectors. These tariff shocks could significantly raise import costs on crucial raw materials and intermediate goods, fueling cost-push inflation in sectors like transportation, electronics, and capital goods.
This, in turn, may undermine recent disinflationary gains in food prices. Additionally, India’s external account may come under pressure as exports become less competitive, reducing trade surpluses and adding volatility to the rupee, all of which could dampen the inflation relief currently seen in the domestic economy.

Read More: Trump’s Tariff Tsunami: Global Markets Reeling, Recession Fears Mount

A Long Way From the Inflation Peaks of 2024

The current inflation reading of 3.34% marks a sharp turnaround from the elevated 6.21% print recorded in October 2024, a 14-month high that had rattled policymakers and consumers alike. At that time, vegetable inflation had soared to an alarming 42.4% year-on-year, and overall food inflation breached the 10% mark for the first time in over a year, significantly straining household budgets.
FY24 had closed with an average headline CPI of 5.4%, breaching the RBI’s upper tolerance limit of 6% multiple times through the year. Contributing factors included global crude oil price volatility, erratic monsoons disrupting agricultural output, and persistent supply-side bottlenecks across key sectors.
Fast forward to March 2025, and the picture is dramatically different — inflation has not only returned within the RBI’s comfort zone but has also hit a five-year low.
However, this sharp decline also underscores the fragile nature of the recovery, which remains vulnerable to global macroeconomic shocks such as trade disruptions, climate anomalies, and energy price spikes.

Also read: India’s GDP Growth Slows: A Mixed Bag of Challenges and Opportunities

Conclusion: A Positive Trend With Fragile Underpinnings

India’s sharp disinflationary trend marks a pivotal moment in its macroeconomic trajectory, offering a breather after years of price volatility. The March 2025 data not only reinforces confidence in the RBI’s policy framework but also boosts the growth outlook as businesses and consumers benefit from easing cost pressures.
Yet, this calm may be temporary, geopolitical tensions, tariff escalations, and climate-linked disruptions could reintroduce volatility. For now, though, India enters FY26 on a strong footing, with policy space intact and inflation expectations well-anchored.
Sustaining this balance will require vigilance, agility, and continued coordination between fiscal and monetary authorities amid an unpredictable global landscape.