Key Points
Kerala tops state inflation with 7.3% rate
Rural areas experience sharper price increases
Southern region shows highest inflation trend
Inflation expected to moderate in FY26
The overall inflation trends continue to highlight the divergence between rural and urban inflation, with rural areas experiencing a sharper rise in prices.
This disparity is largely attributed to the higher weightage of food prices in the CPI index. Food items constitute 54.2 per cent of the rural consumption basket, compared to 36.3 per cent in urban areas.
Among major states, nine states recorded rural inflation higher than the all-India rural inflation rate, while eight states witnessed urban inflation exceeding the national urban inflation rate.
The report says that Tamil Nadu has recorded higher inflation than the all-India inflation rate in nine of the last 13 years. In contrast, Gujarat and Punjab have managed to keep their inflation rates lower than the national average in nine of the last 13 years.
Despite the all-India inflation rate cooling to a seven-month low of 3.6 per cent in February 2025, inflationary trends among states remain divergent. However, inflation across states seems to be synchronizing within a 3-6 per cent range, a significant improvement from 6-12 per cent levels in FY14.A region-wise analysis of inflation from FY12 to February 2025 indicates that the Southern region recorded the highest CAGR inflation of 6.0 per cent, followed by the Eastern region at 5.8 per cent. Notably, the Southern region also registered the highest inflation in both rural (6.1 per cent) and urban (6.0 per cent) areas.
CPI inflation is expected to decline to 3.9 per cent in Q4 FY25, averaging 4.7 per cent for FY25. Based on current projections, inflation is likely to moderate further to 4.0-4.2 per cent in FY26, while core inflation is expected to remain between 4.2 per cent and 4.4 per cent.
Given the benign inflation trend, a cumulative rate cut of at least 75 basis points is anticipated, with successive rate cuts expected in April and August 2025. If inflation remains under control, further rate cuts could be introduced from October 2025 onwards, providing relief to consumers and businesses alike.
