Shoppers across India are getting some relief as retail inflation cooled to 1.55% in July,  the second lowest in eight years.The main reason? Food inflation actually turned negative. This means the prices of many essentials are currently lower than they were a year ago. CPI inflation has now declined for nine consecutive months, marking a steady cooling trend. For the first time since 2019, it has dropped below the MPC’s 2–6% comfort range. For the RBI, this opens up more room to cut interest rates, a move that could give the economy and India’s GDP growth a healthy push in the months ahead.

Key Highlights of Retail Inflation – July 2025

Indicator	July 2025	June 2025	Change / Remarks
Retail Inflation (CPI)	1.55%	2.10%	Lowest in 8 years, 2nd lowest ever under current CPI series
Food Inflation	-1.76%	-0.3%	Prices fell YoY, biggest drop since Jan 2019
Vegetable Prices	-20.69% YoY	-7% YoY	Lowest in nearly 4 years
Urban Inflation	2.05%	2.56%	2nd lowest ever
Rural Inflation	1.18%	1.72%	Record low
Core Inflation	4.1%	4.4%	Drop led by lower education & personal care prices
RBI Inflation Forecast	Q2 FY26: 2.1%	—	Rising to 4.9% by Q1 FY27
Policy Impact	—	—	Below MPC’s 2–6% target range for first time since Jan 2019, rate cut hopes rise

Below are the reasons for the decline. 

• Food Prices Continue to Drive Inflation Down

The biggest reason for retail inflation cooling in July 2025 was the sharp drop in food inflation. Prices fell 1.76% year-on-year, the steepest fall since January 2019. Vegetable prices were down 2over 0% compared to last year, their lowest level in nearly four years. However, on a month-to-month basis, vegetables and fruits became more expensive, with vegetables up 11.6% and fruits up 2.8% from June.

• Rural Inflation Hits Record Low, Urban Inflation Nears All-Time Low

Inflation in rural India dropped to 1.18%, its lowest ever recorded level. Good monsoon rains have supported farm output and kept prices in check, boosting rural purchasing power. In cities, urban retail inflation fell to 2.05%, the second-lowest ever reading. This rural-urban divide also reflects in consumer confidence surveys, with rural households becoming slightly more optimistic while urban sentiment remains cautious.

• Core Inflation Sees Mild Decline

Excluding food and fuel, core inflation slipped to 4.1% in July from 4.4% in June. The moderation was mainly due to softer price momentum in categories like education and personal care. However, gold prices, which have been a major driver of core inflation this year, remain elevated, up 36% year-on-year.

• Below the RBI Target, Policy Outlook Changes

For the first time since January 2019, CPI inflation has fallen below the RBI’s Monetary Policy Committee lower target of 2%. At 1.55%, the latest reading is well below the midpoint of the 2–6% range, giving the RBI more room to consider a rate cut. Economists say further easing could be on the table, especially if India’s GDP growth faces headwinds from global trade tensions.

Final Thought

With retail inflation now at an eight-year low, households are feeling some relief on essential spending. Also, policymakers have more flexibility in setting interest rates. The drop below the RBI’s lower target opens the door for the Monetary Policy Committee to consider further rate cuts, which could support borrowing and boost growth.

However, risks like volatile global food prices, potential weather disruptions, and global trade tensions, including tariff threats, mean the path ahead isn’t without hurdles. For now, the latest CPI inflation data offers a welcome breather for the economy, but sustaining it will require steady supply chains and a watchful eye on global developments.

Source: MoneyControl

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