India’s Retail Inflation Drops to 8-Year Low of 1.55% in July 2025

India’s retail inflation eased to an over eight-year low of 1.55% in July 2025, supported by a significant cooling in food prices, according to the latest government data. This is the first time in over six years that inflation has fallen below the Reserve Bank of India’s (RBI) tolerance band of 2% to 6%. The last time inflation was lower was in June 2017.

Sharp Decline from Previous Months

Retail inflation in July eased from 3.16% in April 2025 and 3.54% in July 2024. A Reuters poll of 50 economists had predicted inflation at 1.76%, but the actual data came in even lower.

Food Prices See a Steep Drop

• Food inflation, which accounts for nearly 50% of the Consumer Price Index (CPI) basket, recorded -1.76% in July compared to -1.06% in June.

• Despite uneven monsoons, a strong spring harvest helped India control food price growth, marking the longest disinflationary streak in more than a decade.

RBI’s Monetary Policy Context

The inflation data comes a week after the RBI’s Monetary Policy Committee (MPC) left the repo rate unchanged at 5.50%.

• This pause followed three consecutive rate cuts since February, totaling 100 basis points.

• The MPC retained its ‘Neutral’ stance, citing a “more benign” inflation outlook, which could allow the central bank to support economic growth.

Impact of Global Trade Tensions

The softer inflation numbers come at a time when India’s economy is facing external headwinds.

• US President Donald Trump’s tariff hike on Indian goods has created additional economic pressure.

• The benign inflation outlook offers the RBI more flexibility to manage growth in the face of these challenges.

Fuel and Core Inflation Trends

• Fuel and light prices rose to 2.67% in July from 2.55% in June.

• Core inflation (excluding food and fuel) remained steady at 4%, indicating stable underlying price pressures.

RBI’s Inflation Outlook for FY26 and FY27

The RBI expects inflation to rise slightly in the last quarter of FY26, mainly due to volatile food prices, particularly vegetables.

• FY26 full-year projection: 3.1% (lower than June’s 3.7% forecast).

• Quarterly estimates for FY26:

1. Q2: 2.1%
2. Q3: 3.1%
3. Q4: 4.4%

• Q1 FY27: CPI projected at 4.9%, above the RBI’s 4% target.
  The RBI stated that risks to the inflation outlook are “evenly balanced.”