India’s retail inflation dropped to 1.55% in July 2025, down from 2.10% in June, reaching its lowest level in over eight years—a sharp slowdown last seen in June 2017. This rate undershot economists’ expectations and the Reserve Bank of India’s (RBI) 2–6% target band.
What’s Behind the Drop
This remarkable fall was driven primarily by easing food prices, particularly vegetables (–20.7%) and pulses (–13.8%), which deepened the ongoing deflationary trend in the food basket.
A Reuters poll had forecast inflation to drop to 1.76%, but the actual number came in even lower, reinforcing the strength of cooling price pressures.
Economic & Policy Implications
- RBI’s Stance: The sustained disinflation prompted the RBI to revise its FY26 inflation forecast downward from 3.7% to 3.1%, while maintaining its policy repo rate at 5.5% to support growth. The Times of India
- “Goldilocks” Scenario: With inflation easing and economic growth holding firm, India appears to be entering a balanced macroeconomic phase—ideal for rate stability and sustainable expansion.
What to Watch Going Forward
- Core Inflation & Retail Trends: Though food prices have been the main driver, keeping track of core inflation and service sector pricing will offer a fuller picture of price dynamics.
- Monsoon Impact: As agricultural supplies stabilize, continued benign monsoon conditions could further influence food inflation trends.
- Policy Flexibility: With inflation below the target range, the RBI may use the space to tweak monetary policy depending on economic growth signals.
