New Delhi, August 13, 2025 — Retail inflation in India plunged to an eight-year low of 1.55% in July 2025, down sharply from 2.10% in June, driven largely by falling prices of essential food items like vegetables and pulses.
This marks the first time inflation has fallen below the Reserve Bank of India’s (RBI) target range of 2%–6% since January 2019. Prolonged declines in food costs—particularly vegetables (which dropped around 20.7%) and pulses (down 13.8%)—pushed the Consumer Food Price Index into deflation territory at –1.76%.
Rural inflation softened even further to 1.18%, while urban inflation stood at 2.05%, signifying broad-based relief amid supply-led price dynamics.
Economists see this development as a mixed blessing. While the decline provides breathing room for the RBI, allowing it to maintain the status quo on interest rates, the consensus is that this drop is largely temporary and food-driven, with limited long-term policy impact. Additionally, the RBI has lowered its full-year inflation forecast to 3.1%, down from the earlier 3.7% estimate, signaling confidence in the softer inflation trajectory.
Markets reacted positively, with the Sensex and Nifty opening higher on Wednesday. The decline in inflation, coupled with softer U.S. inflation data, strengthened expectations of an upcoming global rate cut, fueling investor optimism.
Why It Matters:
- The sharp drop in food prices—an everyday concern for millions—offers much-needed relief to household budgets.
- However, core inflation (excluding food and energy) remains moderate, indicating persistent price pressures in sectors like healthcare, housing, and education.
- A sustained decline in overall inflation, if achieved, could pave the way for monetary easing, potentially boosting economic growth amid global trade uncertainties.
