Depreciating rupee, global commodity prices may impact India's CPI inflation: Bank of Baroda report
Mar 06, 2025
New Delhi [India], March 6 : The depreciating Indian rupee and the global commodity prices can impact the inflation targeting of the country, according to a report Bank of Baroda.
The report highlighted that a depreciating rupee could increase the cost of imports, leading to higher inflation.
Additionally, global commodity prices, which had been easing, may start rising again due to trade policies like tariffs imposed by the United States. These factors pose an upside risk to India's inflation outlook.
It said, "upside risks emanate from a depreciating rupee which poses risks of imported inflation and bottoming out of commodity price cycle from threats of tariff imposed by the US".
The report also highlighted that India's consumer price index (CPI) inflation is projected to settle at around 4.9 pc in the financial year 2024-25 (FY25) and 4.6 pc in FY26.
It said, "We expect CPI to settle at approx. 4.9 per cent in FY25 and 4.6 per cent in FY26, with risks tilted to the upside".
In January 2025, CPI inflation eased to 4.3 per cent from 5.2 per cent in December 2024. This decline was mainly driven by a sharp correction in food prices. Food inflation fell by 237 basis points (bps), reaching 6 per cent in January from 8.4 per cent in December.
One of the biggest contributors to this decline was vegetable inflation, which dropped significantly from 26.6 per cent in December to 11.3 per cent in January. This was largely due to bumper arrivals of key vegetables like tomatoes, onions, and potatoes (TOP) since November 2024, helping bring prices down.
Meanwhile, core inflation, which excludes food and fuel, remained stable at 3.6 per cent year-on-year. However, when excluding pan, tobacco, and intoxicants, core inflation was slightly higher at 3.7 per cent.
The report noted that core inflation has shown little movement in recent months. Gold prices, on the other hand, surged by 33 per cent on a year-on-year basis during the same period.
Looking ahead, if volatile components like vegetable prices continue to trend downward, achieving the Reserve Bank of India's 4 per cent inflation target could become more feasible. However, risks remain, and global economic conditions will play a crucial role in determining India's inflation trajectory.
