‘Fin min sees FY25 CPI inflation around 5%’

The RBI’s projections place average headline inflation in the current financial year started on Apr 1 not too far from the target rate of 4%, but an internal assessment by the finance ministry is relatively more pessimistic. The ministry expects inflation based on the Consumer Price Index to average at around 5.0% in 2024-25, 50 basis points higher than the central bank’s projection, a senior official from the finance ministry told Informist.

India's CPI inflation averaged 5.4% in 2023-24. Although an average inflation of 5% would be within the RBI's tolerance band, the finance ministry would ideally like inflation to be below 4.5%, the official said. The RBI’s mandate is to keep inflation close to the target rate of 4%, within a band of plus or minus 200 bps.

"For 2024-25, inflation should be around 5%, but less than 4.5% is more ideal. That would be better," the official said. Earlier in the month, the RBI retained its inflation forecast for the current year at 4.5%, but flagged uncertainty from food prices, as well as risks arising from a rise in crude oil prices, geopolitical tensions, and financial market volatility. The International Monetary Fund and the Asian Development Bank have both projected India's inflation for 2024-25 at 4.6%.

According to the official, even though risks to inflation have abated, the trajectory of CPI inflation will depend on many factors, especially crude oil prices. "We have to monitor how crude prices pan out this year. Any global development will impact it first," the official said.