Daily Briefing 3/12/25
Consumers Price Index/Industrial Production (MOSPI)
The Consumer Price Index (CPI) for India shows a year-over-year “inflation” rate of 3.61% in February 2025, marking a decline of 65 basis points from January 2025. This represents the lowest rate since July 2024. Food price increases, measured by the Consumer Food Price Index (CFPI), stands at 3.75% y/y in February 2025, showing a significant decline of 222 basis points from January 2025. India’s industrial production rose by 5.0% year-over-year in January 2025, exceeding the market expectations of 3.5%. This growth follows a revised 3.5% expansion in December 2024. Key sectors driving the growth include coke and refined petroleum products (8.5% growth vs 3.9% in December), other non-metallic mineral products (10.2% vs 3.3%), and textiles (3.3% vs 1.4%).
Interpretation
The recent price expectations data for India in February 2025 reveals some important economic trends that reflect both short-term relief though more importantly some growing concerns. While the year-over-year CPI has decreased significantly, with the price expectations for February dropping to 3.61%, the primary focus should be on the dynamics behind this. The reduction in headline “inflation” from 4.59% in January to 3.79% in February appears to be a positive development, signaling potential stabilization in consumer prices. However, this decline coincides with persistent challenges in India’s banking sector and broader financial system.
India’s CPI has now declined for four consecutive months, a highly unusual development that demands further scrutiny and attention given the monetary and financial conditions. The last time the index did something close to this was in the five-month period at the depths of the pandemic in 2020.
At the same time, the level of industrial production remains relatively low compared to historical trends. While 5.0% year-over-year growth is a positive sign that the underlying productive economy hasn’t been pulled into the price deflation, it is important to note that this rate of growth is still lower than the 5.5% increase recorded in March 2024. This signals that the pace of industrial recovery is not accelerating at the same rate as it did earlier in 2024. The comparison with March 2024 highlights a potential slowdown in momentum, as the January growth rate, although strong, does not represent an exceptional recovery when viewed in the context of previous years.
India’s banking sector remains the critical point of concern, as it struggles with volatility in money rates and frequent interventions by the Reserve Bank of India (RBI) to inject liquidity. The broader economic context, including stock market performance and interbank lending difficulties, hints at underlying fragilities that may spill over into the real economy. The “deflationary” trend in CPI, if sustained, could point to that very possibility working its way toward the surface, and the volatility in the financial sector raises the chances of something like that occurring. The fact that India’s price expectation is relatively lower at this point may be more indicative of economic stagnation, especially if “deflation” persists.
