RBI's inflation target seems feasible with softened vegetable prices, skewed demand recovery: BoB report

India's inflation outlook appears favourable, with the possibility of aligning with the Reserve Bank of India's (RBI) 4 per cent target in the coming months, highlighted a report by Bank of Baroda.

The report noted that a seasonal decline in food prices, particularly in vegetables, along with better supply management policies, has contributed to a lower Consumer Price Index (CPI) inflation rate.

It said "If volatile items of CPI especially vegetable inflation continue to play in favour, alignment to the inflation target seems feasible. Our forecast also looks at progressive alignment to the 4 per cent level".

The report stated that headline CPI inflation in January has benefitted from the seasonal correction in food prices. Measures taken to manage the supply of essential food items have played a crucial role in containing inflationary pressures.

It also added that in a time of global policy uncertainty, the lower-than-expected inflation figures provide relief from a monetary policy perspective.

Food inflation in January has eased due to seasonal factors and improved supply-side conditions. The report mentioned that the high-frequency price data for February 2025 shows a continued softening in prices, especially for tomatoes and potatoes, which have seen a sharp decline.

Additionally, core inflation remains insulated, meaning that price pressures outside food and fuel remain stable.

The report also highlighted that recent financial results from companies indicate a skewed demand recovery, with only a few segments witnessing strong growth. This trend suggests that core inflation will likely remain under control.

Overall, the report views easing CPI inflation as a positive sign for monetary policy, especially given the uncertainties in the global economic landscape.

Factors such as currency fluctuations, liquidity conditions, and potential changes in monetary policies worldwide continue to pose challenges.

However, with food prices stabilizing and core inflation remaining steady, the inflation outlook appears to be on track for further improvement.