India’s retail inflation cooled to a five-month low of 4.31% in January, providing more space for the Reserve Bank of India to do a follow-up repo rate cut in its April policy after lowering it by 25 basis points last week.

This is the third straight month that inflation has dipped year-on-year, mainly due to lower food prices. The Consumer Price Index (CPI)-based retail inflation was 5.22% in December, and 5.1% in January 2024.

Food inflation, which comprises around half of the overall Consumer Price Index (CPI) basket, eased to 6.02% in January, from 8.39% in December and 8.3% a year ago. 

The RBI has the mandate to keep retail inflation at 4%, with a margin of 2% on either side.

India’s retail inflation had surged to a 14-month high of 6.2% in October, with food inflation reaching a 15-month high of 10.9%.

With inflation easing, the RBI, in its February policy, cut interest rate for the first time in nearly five years. The repo rate was reduced by 25 basis points to 6.25% to spur growth.

The RBI has to, however, contend with a weaker rupee, which hit a record low earlier this month and is under pressure from a stronger dollar.