India’s retail inflation eases to eight-year low of 1.55% in July

Inflation for July

India’s retail inflation eased to an eight-year low of 1.55 percent in July, down from 2.1 percent in June, according to official data released on August 12. This is the first time since January 2019 that retail inflation fell below the 2 percent mark.

The moderation in retail inflation extends a six-month streak of sub-4 percent inflation, with the average since April holding below 3 percent.

"The CPI inflation was dampened by the continued YoY decline in food prices on an elevated base, even as vegetable prices displayed a surprsing uptick," said Aditi Nayar, chief economist, Icra.

Food inflation remained in negative territory for the second straight month, with the index recording a deeper deflation of 1.8 percent compared with -1.1 percent in June. The decline was largely led by lower prices of pulses, vegetables, cereals, eggs, sugar, and transport costs. The July food inflation reading is the lowest since January 2019.

Vegetable prices shrank 20.7 percent from the previous year, while pulses were down 14 percent. Meat and fish inflation also continued their negative streak for a fourth consecutive month. On the other hand, fruit inflation rose faster at 14.4 percent compared with 12.6 percent the previous month. Oils and fats inflation was up 19.2 percent.

Rural inflation stood at 1.18 percent in July, down from 1.72 percent in June, while urban inflation eased to 2.05 percent from 2.56 percent in the same period.

Miscellaneous inflation remained a high 5 percent compared with 5.5 percent in June, with personal care and effects recordingf a 15 percent rise in prices on the back of rising gold and silver prices.

At its most recent policy meeting, the Reserve Bank of India cut its full-year inflation forecast to 3.1 percent from 3.7 percent earlier. The central bank now expects inflation to average 2.1 percent in the second quarter, rise to 3.1 percent in the third, and end the fiscal year at 4.4 percent in the fourth quarter.

"ICRA expects the CPI's Food & Beverage print to revert to an inflation in August 2025 from deflation of 0.8 percent in July 2025. Consequently, the headline CPI inflation is likely to inch up to ~2 percent in August 2025 from 1.55 percent in July 2025, with an average CPI inflation of 3.0-3.2 percent in FY26," said Nayar.

Experts indicate that expectation of higher inflation in the future is likely to impact trajectory of future rate cuts.