Government data showed that retail inflation in India eased to 1.55% in July, the lowest year-on-year rate since June 2017. The decline comes after inflation stood at 3.16% in April and 3.54% in July 2024.
A Reuters poll of 50 economists had predicted a 1.76% rate for July, indicating that the fall surpassed expectations.
Food inflation, which accounts for nearly half of the Consumer Price Index (CPI) basket, fell to -1.76% in July, compared with a contraction of 1.06% in June.
Despite uneven monsoon patterns, a strong spring harvest has helped keep food prices under control, extending India’s longest disinflationary streak in over a decade.
Vegetable prices fell sharply, dropping 20.69% in July compared with a 19% decline in June. Pulse prices also declined 13.76% in July, up from an 11.76% fall in June. Retail inflation in rural areas stood at 1.18%, while urban areas recorded 2.05%.
RBI Monetary Policy Response
The data comes shortly after the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) kept rates unchanged at 5.50%, describing the inflation outlook as ‘more benign’.
This pause followed three consecutive rate cuts since February, totalling 100 basis points, while the MPC retained its Neutral stance.
The RBI highlighted that the benign inflation outlook provides more room to support the economy, which faces pressure from rising US tariffs on Indian goods. Fuel and light prices rose slightly to 2.67% in July from 2.55% in June.
The RBI projected that inflation may rise in the last quarter of FY26 due to volatile food prices, particularly vegetables, despite easing geopolitical risks.
For the full year FY26, the central bank expects headline inflation to average 3.1%, down from the 3.7% forecast in June.
Looking ahead to FY27, CPI inflation is projected to rise to 4.9% in Q1, potentially breaching the RBI’s 4% target. Quarterly estimates include 2.1% in Q2, 3.1% in Q3, and 4.4% in Q4.
The MPC noted that risks to the inflation outlook remain ‘evenly balanced’ and confirmed that core inflation has remained steady at 4%.
The sharp decline in retail inflation, led by falling food prices, offers relief to consumers and strengthens the RBI’s ability to sustain supportive monetary policies. This easing trend could also aid domestic demand and investment, helping stabilise India’s economic growth amid global uncertainties.
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