Core inflation edged higher due to gold price surge, positive food inflation trend: Report

NEW DELHI: The outlook for core inflation remains positive despite some upward pressure from rising industrial metal prices, according to ICICI Bank Global Markets report.

Core inflation edged higher in February, mainly due to a surge in gold prices, but the stabilization of global edible oil prices and expectations of a normal monsoon suggest a favourable food inflation trend in the coming months.

However, uncertainties persist as food prices could be influenced by global market movements, including tariffs imposed by various countries and fluctuations in fertilizer costs.

Domestically, the demand-supply outlook remains balanced, supported by a high base effect, which should help keep food inflation moderate in the next year.

Looking ahead, inflation is expected to average 4.2 per cent YoY in FY26, aligning with the RBI’s target. A normal monsoon, stable currency, and declining energy prices suggest a favourable inflation trajectory.

However, global factors such as trade tariffs, capital flows, and commodity price movements could introduce uncertainty. While a rate cut in April appears likely, the timing of subsequent cuts will depend on the evolving domestic and international economic landscape.

India’s retail inflation eased to a seven-month low of 3.61 per cent year-on-year (YoY) in February 2025, down from 4.26 per cent in January, driven primarily by a sharp decline in food prices.

The moderation in food inflation, which fell to 3.75 per cent YoY in February from 6.0 per cent in January, played a crucial role in bringing down overall inflation.

A stable monsoon, steady currency exchange rates, and declining energy prices are expected to keep inflation under control in the coming months.

Despite expectations of rising vegetable prices in the summer, the high base effect from last year should keep overall food inflation in check.

Moreover, the projected increase in rabi crop output, particularly in wheat and cereals, is expected to contribute to a stable food price environment. However, upward pressure may be seen in edible oils and sugar prices due to global market trends and a decline in sugarcane production.

Despite the rise in industrial metal prices, a stable Indian rupee and weak global energy demand are expected to keep core inflation in check. With oil prices declining in March due to increased production from OPEC and lower energy consumption in the US, inflationary pressures from energy costs are expected to remain subdued.

With inflation coming in lower than the Reserve Bank of India’s (RBI) projection of 4.4 per cent for Q4 FY25, experts believe that the Monetary Policy Committee (MPC) may cut interest rates in April.

The latest data indicates that inflation for Q4 FY25 is now estimated at 3.9 per cent, providing room for the RBI to ease monetary policy.

A potential shift in the MPC’s stance to a more neutral position could allow for increased liquidity injections to support economic growth. (ANI)