Inflation well-contained; Headline retail inflation may not accurately reflect demand: Finmin

Inflation appears largely under control

India's inflation appears largely under control despite sporadic spikes in prices of certain vegetables, the Union finance ministry said, adding that the headline retail inflation rate may not accurately reflect underlying demand trends as it is influenced by price fluctuations in a limited number of food items.

“Barring a sharp rise in the prices of a few vegetables, inflation appears well contained,” the ministry said in its September economic review. Favorable factors such as replenished reservoir levels, a robust Kharif crop forecast, and ample food grain stocks are expected to sustain this trend over the medium term. The ministry pointed to survey data from both the Reserve Bank of India and IIM Ahmedabad, which suggest that inflation expectations among households and businesses are softening.

In the review, the ministry stressed that “the headline inflation rate, influenced as it is by a few food items, may not be the most accurate gauge of the underlying demand conditions in the economy.” This perspective follows growing global investor interest in India, particularly among international direct and portfolio investors. "Sustaining India’s growth momentum is essential to turn these positive sentiments into actual direct and portfolio investments in the country,” it added.

The ministry observed that India’s economic performance has been “satisfactory” in the first half of FY25, bolstered by strengthened rural demand, enhanced agricultural activity, an improving services sector, and a stable external sector. However, it cautioned that the outlook is tempered by risks from geopolitical conflicts, economic fragmentation, and elevated valuations in financial markets across advanced economies.

“These developments could have spillover effects on India,” the ministry said, noting that potential adverse wealth impacts could affect household sentiment and dampen spending on durable goods.