India's retail inflation eases to 6-year low of 2.1% in June

Consumer inflation for June

India’s retail inflation eased to a 77-month low of 2.1 percent in June, down from 2.8 percent in the previous month, driven largely by falling food prices, according to government data released on July 14.

The drop mirrors trends in wholesale inflation, which declined to a near two-year low of -0.13 percent in June. Retail food inflation, in particular, slid to a 74-month low, entering deflationary territory for the first time since April 2019.

Key contributors to the fall in food prices include vegetables, which were 19 percent cheaper than the same period last year, and pulses, which declined 12 percent year-on-year. These significant drops offset the still-elevated prices of oils and fruits, which logged inflation rates of 17.8 percent and 12.6 percent, respectively.

While meat and fish remained in deflation for the third consecutive month, egg prices rose 2.6 percent, a six-month high.

Outside food, clothing and footwear inflation eased to 2.55 percent from 2.67 percent in May. However, price pressures remained in healthcare services, transportation services, and gold, which saw an uptick during the month.

“The softer than expected headline inflation comes on the back of moderating food prices. However, core inflation has ticked up. Overall, the high frequency mandi prices suggest food prices remain largely muted, except for few vegetable prices," said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank

Room for more cuts?

The subdued inflation environment has given the Reserve Bank of India (RBI) the room to ease rates. The Monetary Policy Committee (MPC) has delivered three rate cuts since February, including a 50 basis point reduction in June. The repo rate now stands at 5.5 percent, a full 100 bps below the rate at the beginning of 2024.

For the April–June quarter, headline inflation averaged 2.7 percent, coming in below the RBI’s estimate of 2.9 percent for Q1 FY26.

Economists expect the trend to continue, but say that the Reserve Bank is unlikely to budge on rates so soon.

"We expect the FY26 inflation to undershoot RBIs estimates of 3.7% by around 50bp. While comfortable inflation opens room for further monetary easing, we expect the RBI to maintain a pause in the coming 1-2 meetings and remain watchful of the transmission ahead along with global uncertainties,” said Bhardwaj.