According to the Economic Survey 2024-25, which was published on January 31, food inflation, as measured by the Consumer Food Price Index (CFPI), increased from 7.5% in FY24 to 8.4% in FY25 (April–December). A few foods, especially vegetables and pulses, were the main drivers of this increase.
The Consumer Price Index (CPI), which measures retail inflation in India, averaged 5.4% from April to December of FY25. This exceeded the central bank's comfort zone of 4% even though it was still within the Reserve Bank of India's (RBI) upper tolerance level. Due in large part to supply disruptions affecting essential commodities like onions, tomatoes, and pulses, food inflation in particular exceeded 8% on multiple occasions.
According to the survey, agricultural output was greatly impacted by extreme weather events. Heatwaves caused tomato prices to soar 37% during the height of summer, while unseasonable rainfall in major growing regions kept onion prices 20% higher than their five-year average. The survey also found that unpredictable weather has caused 15% more crop area damage over the previous three years, which has increased pressure on food prices.
Core inflation, which does not include food and fuel, decreased to 4.1 percent, but inflation related to services, such as housing, healthcare, and education, kept rising. For example, healthcare costs increased by 6.5%, but housing rents increased by 12%. Strong urban demand, wage growth, and supply chain disruptions affecting necessary medical supplies were cited by the survey as the reasons for these cost increases.
In FY25 (April–December), vegetables and pulses, which together make up 8.42% of the CPI basket, were responsible for 32.3% of total inflation. In the absence of these factors, the average rate of food inflation would have been 4.3%, which is 4.1 percentage points less than the stated amount. Similarly, the overall inflation rate would have been 3.2%, 1.7 percentage points lower than the headline inflation, if vegetables and pulses had not been included in the calculation.
Global inflation trends
Global inflation has dropped from its peak following the pandemic. The survey found that weak demand and declining energy prices caused inflation in the Eurozone to drop to 2.9% by the end of 2024, while inflation in the US decreased from 6.5% in 2023 to 3.4% by the end of 2024.
Global risks still exist in spite of this moderation. The external economic environment is now more complex due to China's deflationary concerns, the European Union's carbon border tax that affects trade costs, and the US Federal Reserve's cautious approach to rate cuts. A drop in the price of commodities globally, particularly crude oil, which averaged $82 per barrel in 2024 as opposed to $95 in 2023, has given India some respite.
However, a weaker rupee—which lost 4.5% of its value against the US dollar over the course of the year—continues to pose a cost challenge for industries that depend on imports.
RBI measures to control the pressures of inflation
To manage inflation and stabilize inflation expectations, the RBI maintained the repo rate at 6.5 percent for most of 2024. The government also implemented supply-side measures, such as releasing 5 lakh tonnes of wheat and rice from buffer stocks, to stabilize the prices of staple foods.
Investments in cold storage and logistics facilities, along with a Rs 10,000 crore incentive for the food processing sector, have also reinforced long-term food supply chains. Although the survey cautioned that such changes must be made carefully to avoid undue financial strain, discussions regarding altering the minimum support prices (MSP) for a few crops are still ongoing.
Forecast for FY26 inflation
The Economic Survey claims that India's inflation trajectory paints a contradictory picture. Food prices continue to be a significant variable because of climate-related uncertainties and global supply chain disruptions, even though overall CPI inflation is predicted to decrease to 4.5% in FY26. According to the survey, inflationary pressures may lessen even more if domestic food supply chains improve and world oil prices stay steady.
