India’s inflation hit a low of 3.6% in February, with many states seeing high inflation. According to SBI research report, Kerala reported the highest inflation rate of 7.3% among states in February, followed by Chhattisgarh at 4.9%.

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% of the rural consumption basket, compared to 36.3% 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.

Kerala Sees Highest Inflation: What Else?

Despite the all-India inflation rate cooling to a seven-month low of 3.6% in February 2025, inflationary trends among states remain divergent. However, inflation across states seems to be synchronizing within a 3-6% range, a significant improvement from 6-12% 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%, followed by the Eastern region at 5.8%.
Notably, the Southern region also registered the highest inflation in both rural (6.1%) and urban (6%) areas.
CPI inflation is expected to decline to 3.9% in Q4 FY25, averaging 4.7% for FY25. Based on current projections, inflation is likely to moderate further to 4.0-4.2% in FY26, while core inflation is expected to remain between 4.2% and 4.4%.

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.

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