India’s inflation rate dropped to a seven-month low of 3.6 per cent in February, but several states continue to experience high inflation, according to an SBI research report. Kerala recorded the highest inflation at 7.3 per cent, followed by Chhattisgarh at 4.9 per cent.

The report highlights the ongoing rural-urban inflation divide, with rural areas witnessing sharper price rises due to the higher weightage of food prices in the Consumer Price Index (CPI). Food items make up 54.2 per cent of the rural consumption basket, compared to 36.3 per cent in urban areas.

Inflation trends among states

Among major states, rural inflation surpassed the national rural inflation rate in nine states, while urban inflation exceeded the national urban rate in eight states. Tamil Nadu has consistently recorded inflation above the all-India rate in nine of the last 13 years, while Gujarat and Punjab have managed to keep inflation below the national average during the same period.

Despite the cooling all-India inflation, state-level variations persist. However, inflation across states appears to be stabilising within a 3-6 per cent range, a significant improvement from the 6-12 per cent range seen in FY14.

Regional inflation patterns

A region-wise analysis from FY12 to February 2025 shows that the Southern region recorded the highest compound annual growth rate (CAGR) inflation at 6.0 per cent, followed by the Eastern region at 5.8 per cent. The Southern region also reported the highest rural (6.1 per cent) and urban (6.0 per cent) inflation rates.

Inflation outlook and policy response

CPI inflation is projected to decline to 3.9 per cent in Q4 FY25, averaging 4.7 per cent for the fiscal year. Forecasts suggest further moderation to 4.0-4.2 per cent in FY26, while core inflation is expected to range between 4.2 per cent and 4.4 per cent.

With inflation trends remaining benign, a cumulative rate cut of at least 75 basis points is expected, with successive reductions likely in April and August 2025. If inflation remains under control, further rate cuts may be introduced from October 2025 onwards, offering relief to consumers and businesses.

With ANI inputs