India’s Retail Inflation Drops To 5-Month Low, But These States Still Struggle

India’s retail inflation slowed to a five-month low of 4.31% in January 2025, a drop from 5.22% in December 2024. Nevertheless, even with the general slowdown, some states remain to have much higher inflation rates than the overall national average. Among these, Manipur, Kerala, and Odisha have been hit the hardest, with inflation rates exceeding 6%, causing significant distress to consumers and businesses.

According to the latest government data, Manipur recorded the highest inflation rate at 7.4%, followed by Kerala at 6.8% and Odisha at 6.1%. Additionally, eight other states reported inflation rates above 5%, while 19 of 35 states had inflation rates higher than the national average.

Manipur: Inflation Amidst Political and Social Turmoil

Manipur has been in conflict for the past 21 months, and political instability has further exacerbated its economic distress. The state recently witnessed the resignation of its Chief Minister, adding another layer of uncertainty to the region.

Inflation in Manipur stood at 7.4% in January, which, although lower than the 9.4% recorded in December, remains the highest in the country. Essential items like food grains, cooking oil, and fuel have experienced a sharp price hike because of continuing supply chain disruptions.

Kerala: Inflation Hits a Near Five-Year High

Kerala’s inflation was 6.8% in January, a big jump from 6.4% in December. This inflation is accounted for by:

1. High transportation costs: The state relies heavily on imports of food grains, vegetables, and fuel from other regions, leading to higher logistical expenses.
2. Strong demand for services and tourism: Being a tourist destination, the post-pandemic recovery has brought about rising demand for accommodation, food, and services, which has led to inflation.
3. Fluctuating fuel prices: Petrol and diesel prices have increased, impacting transport and manufacturing costs.

Kerala’s inflation rate has become the highest in almost five years, putting money pressure on small-scale industries, businesses, and households.

Odisha: Food and Fuel Price Surge Drive Inflation

Odisha registered 6.1% inflation, standing among the most inflation-prone states in India. The following are the chief causes of inflation in Odisha:

• Rising food prices: Staple foods, including rice, pulses, and vegetables, have increased because of unpredictable weather patterns that impact the production of crops.
• Fuel price hikes: Like Kerala, Odisha depends on imported fuel, which has caused transportation and production costs to spike.
• Limited industrial growth: Economic activities in the state have not grown at a rate that neutralizes inflationary pressures, thereby adding to price increases.

Other States Facing High Inflation

Apart from Kerala, Odisha, and Manipur, several other states reported inflation rates above 5%:

Inflation Trends: A National Overview

While most Indian states saw a decline in inflation, Goa and Kerala witnessed an increase.

• Goa’s inflation rose from 4.4% in December to 4.7% in January.
• Kerala’s inflation increased from 6.4% in December to 6.8% in January.

On a broader level, India’s inflation declined by nearly one percentage point, from 5.22% in December to 4.31% in January. To spur economic development, the Reserve Bank of India (RBI) has already lowered interest rates in anticipation of a drop in inflation.

RBI’s Outlook and Future Expectations

The Reserve Bank of India has forecasted further easing of inflation. According to its projections:

• Inflation will decline to 4.2% in the upcoming fiscal year (FY26).
• The FY25 inflation estimate was 4.8%, but the trend suggests a downward revision in the coming months.

With this trend, the RBI will likely implement additional monetary policy steps, such as further rate cuts, to aid economic stability.

Impact on Consumers and Businesses

1. Rising Cost of Living: Inflationary states are hardest hit by growing food, fuel, and housing costs. Essential commodities such as cooking oil, pulses, vegetables, and milk products have seen sharp price rises, reducing the purchasing power of the typical man.
2. Impact on Small Businesses: Inflationary pressures have hit small and medium enterprises (SMEs), especially food processing, retail, and manufacturing firms. Rising raw material prices have compelled companies to raise their prices, making competing difficult.
3. Policy Measures to Curb Inflation: To fight inflation, the central government and state governments can consider:

• Reducing taxation on essential goods to soften price pressures.
• Subsidies on fuel and food items to provide relief to consumers.
• Enhancing supply chains to prevent artificial shortages.
• Promoting agricultural innovation to provide stable food prices and production.

Conclusion

While India’s retail inflation has eased to 4.31%, several states struggle with high inflation rates. Manipur (7.4%), Kerala (6.8%), and Odisha (6.1%) remain among the hardest-hit regions. RBI foresees more declines in inflation, and if the pattern continues, more rate cuts from the central bank are likely to ensure economic stability.

As authorities strive to mitigate inflationary dynamics through targeted economic measures, households and businesses in high-inflation states continue to face the burden of growing costs.

Additional Considerations for Policymakers

• Encouraging Digital Financial Inclusion: A robust digital financial system has the potential to make payments easier, reduce expenses, and promote economic stability.
• Strengthening Rural Development Programs: Investing in rural infrastructure can assist in overcoming supply-chain inefficiencies and stabilizing food prices.
• Implementing Sustainable Energy Policies: Reducing dependency on imported fuel through alternative energy sources could ease inflationary pressures in states like Kerala and Odisha.

As India develops, governments and financial institutions will prioritize balancing economic expansion with controlled inflation.