Retail inflation falls to 8-year low in July, trend likely to reverse in August

India’s retail inflation, measured by the Consumer Price Index (CPI), eased to 1.55% in July from 2.1% in June, a decline of 55 basis points, according to the official data released by the Ministry of Statistics & Programme Implementation today. The inflation marked the lowest year-on-year inflation rate after June 2017 and the ninth straight decline in headline inflation. It also brings the headline inflation well within the Reserve Bank of India’s (RBI) target range of 2-6%.

The CPI inflation was dampened by the continued YoY decline in food prices on an elevated base, even as vegetable prices displayed a surprising uptick. The year-on-year inflation rate based on All India Consumer Food Price Index (CFPI) for July 2025 over July 2024 is -1.76%, the lowest since January 2019. A decline of 75 basis points was observed in food inflation in July 2025 compared to June 2025.

Experts say the headline CPI inflation has fallen further but not as rapidly as expected. ICRA expects the CPI F&B print to revert to an inflation in August 2025 (vs. +5.3% in August 2024) from deflation of 0.8% in July 2025 (+5.1% in July 2024). This could lead to an inching of the headline CPI inflation likely to ~2.0% in August 2025 from 1.55% in July 2025, with an average CPI inflation of 3.0-3.2% in FY2026, says the ratings agency.

"Kharif sowing in the entire season is set to exceed last year's level by a reasonable margin. Cumulative kharif sowing at the end of the ongoing season can meet last year's level (110.9 million hectares), even if incremental sowing contracts by ~20% YoY in the remainder of the season. Nevertheless, the spatial and temporal distribution of rainfall remains key, including a timely withdrawal of the rains to allow for well-timed harvesting," Aditi Nayar, Chief Economist, ICRA, said.

The expected uptrend in the forward-looking inflation trajectory, particularly the 4%-plus prints for Q4 FY2026 and Q1 FY2027, would limit the space for rate cuts in the upcoming policy meetings, she added.

The rural inflation saw a significant decline in headline and food inflation in July 2025 at 1.18% from 1.72% in June 2025. The food inflation in the rural sector stood at -1.74% from -0.87% in June, 2025. In urban India, a decline from 2.56% in June 2025 to 2.05% in July 2025 was seen; food inflation also declined from -1.17% in June to -1.90% in July 2025.

The housing inflation, on a year-on-year basis, stood at 3.17% in July, marginally down from 3.18% in June. The housing index is compiled for the urban sector only. The education inflation fell to 4.00% from 4.37% in the same period for both the rural and urban sectors. The health inflation for both the rural and urban sectors increased to 4.57% from 4.38%, while transport & communication inflation fell to 2.12% from 3.90% for the whole of India. Fuel and light inflation also surged to 2.67% (Provisional) from 2.55% in the said period.

Sanjay Kumar, CEO & MD of pure-play food services company Rassense, said the cooling down of agricultural commodities prices, including pulses, fruits, vegetables and spices, along with others, proved to play a critical role in keeping the trajectory in check. "While this augurs well for the food services sector and Indian economy at large, the global headwinds influenced by factors like trade tariff complexities and geopolitical tensions are likely to have some impact on the Indian inflation trends arising out of a disturbed rural consumption, leading to a periodical spike in inflation in the next quarter."

Experts say domestic consumption demand is unlikely to see a significant pickup despite multi-year low inflation. "Since the decline in inflation is largely driven by contracting vegetable prices, which are seasonal in nature, and prices in the non-food category remain sticky, the boost to disposable incomes is likely to be modest," Vivek Rathi, national director- research, Knight Frank India, tells Fortune India.

He said for the real estate sector, this means disposable incomes, particularly among lower- and middle-income households, will remain constrained. "Nevertheless, stable interest rates should help support buyer confidence and offer some improvement in affordability.”