Retail Inflation To Drop To 4.5% Before March? SBI Research Decodes Why

According to a recent report by the State Bank of India (SBI), the country's retail inflation is expected to decrease to 4.5 percent in the final quarter (January-March) of the 2024-25 fiscal year. The average inflation for the entire year is anticipated to be around 4.8 percent. The report also predicts that inflation will further decrease in FY26, with a projected range of 4.2 percent to 4.5 percent, stated the same SBI report cited by ANI. 

The report highlights that domestic consumer price inflation (CPI) is expected to fall to 4.5 percent by Q4 of FY25, and the January inflation figures are trending close to this level. Inflation in the October-December 2025 period could dip below 4 percent. 

Core Inflation to remain Higher

Meanwhile, core inflation, which excludes volatile food and fuel prices, may surpass headline inflation by September 2025.

The report notes that the Reserve Bank of India (RBI) faces a tough challenge in managing inflation risks, especially in light of fiscal stimulus measures and the unpredictable impact of ongoing global trade tensions. In the short term, the RBI has some flexibility to lower interest rates as the fiscal stimulus effects unfold. Additionally, the US Federal Reserve's decision to hold interest rates steady provides the RBI with more time to stabilize inflation expectations.

Seconding Economic Survey

The Economic Survey, recently presented in Parliament, also estimates that headline inflation for FY26 will be around 4.2%, with FY25's inflation forecast at 4.8%. The SBI report identifies two key factors influencing inflation: fluctuations in the rupee's value and the broader economic growth dynamics. It suggests that long-term fluctuations in the rupee are largely driven by domestic economic growth, while short-term volatility is impacted by external factors like the US Dollar Index and market rates.

Despite factors such as healthy profit margins and fiscal stimulus taking time to show results, the report suggests that tariffs on producer prices will have a limited short-term effect. However, the share of imported inflation in overall consumer inflation is increasing. Overall, the report indicates that inflation is on a downward trajectory, providing policymakers with greater flexibility in managing growth and interest rates.