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The country's retail inflation is expected to decline to 4.5 per cent in the last quarter (January-March) of the financial year 2024-25 (FY25), while the overall average inflation for the year is likely to be at 4.8 per cent, according to a recent report by the State Bank of India (SBI).
The report also projected that inflation will further ease in FY26, with an expected average range of 4.2 per cent to 4.5 per cent. It said "The domestic CPI inflation is expected to come down to 4.5 per cent in Q4 FY25 and average to 4.8 per cent in FY25. January inflation numbers trending closer to approx. 4.5 per cent". In the October-December quarter of 2026, the report added that the inflation could even fall below 4 per cent. Meanwhile, core inflation-- which excludes volatile food and fuel prices, might surpass headline inflation by September 2025. The report highlighted that the Reserve Bank of India (RBI) faces a challenging task in managing inflation risks, especially considering the fiscal stimulus and the uncertain impact of ongoing trade tensions worldwide. In the short term, RBI has some room to cut interest rates as the effects of fiscal stimulus take time to play out. Additionally, the US Federal Reserve's decision to keep interest rates unchanged gives RBI more time to ensure that inflation expectations remain stable. The Economic Survey, which was recently presented in Parliament also estimates headline inflation for FY26 at 4.2 per cent, while for the current fiscal (FY25), it is expected to be around 4.8 per cent. The SBI report identified two key factors influencing inflation, it includes the recent fluctuations in the rupee's value could affect both final and intermediate consumption. It suggests that in the long run, domestic economic growth factors such as real GDP growth and leading indicators explain about 72 per cent of the rupee's movements. However, in the short term, about 45 per cent of the rupee's volatility is driven by non-growth factors, including the US Dollar Index and call money market rates. While the country's profit margins remain healthy, and fiscal stimulus takes time to impact the economy, the effect of tariffs on producer prices will be limited in the short run. However, the share of imported inflation in total consumer inflation is rising. The report suggested that despite these factors, inflation is on a downward trend, which could give policymakers more flexibility in managing economic growth and interest rates. (ANI)
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