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Economy

Fall in food prices bring relief from inflation

Driven by deflation in key food items, Q1 inflation is expected to align with RBI projections, allowing room to focus on growth, says a Bank of Baroda report.

News Arena Network - New Delhi - UPDATED: July 5, 2025, 11:12 AM - 2 min read

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India's inflation trend is likely to remain in line with the Reserve Bank of India's (RBI) projections for the first quarter of the 2025–26 financial year, driven by a favourable statistical base and continued deflation in key food items, the latest report by Bank of Baroda (BoB) has noted.

 

The report suggests that consumer price inflation (CPI) will stay mild in the near term, supported by falling prices in essential categories such as vegetables and pulses. "The outlook for inflation remains comforting for now, as it has the handholding of a favourable statistical base. This is likely to continue in Jul'25 as well. We expect to settle CPI to settle at 2.6 per cent in Jun'25," it stated.

 

RBI's current projection for CPI inflation for 2025–26 stands at 3.7 per cent, broken down into 2.9 per cent for Q1, 3.4 per cent for Q2, 3.9 per cent for Q3, and 4.4 per cent for Q4.

 

The BoB Essential Commodities Index (ECI) reflected a year-on-year deflation of 1.8 per cent in June, following a 0.6 per cent drop in May. This marked the third month in a row of negative inflation, mainly due to better harvests and improved supply conditions.

 

Vegetables from the TOP group (tomato, onion, potato) led the decline. Onion prices fell by 26.1 per cent, potatoes by 20.3 per cent, and tomatoes by 24 per cent compared to June last year. In pulses, Tur or Arhar recorded a sharp drop of 23.8 per cent year-on-year, maintaining four straight months of double-digit deflation. Other pulses, including Urad, Masoor, and Moong, also showed falling trends, helped by good sowing during the ongoing Kharif season.

Also read: India's economic growth at 6.4-6.7 pc in FY26: CII President

 

Cereal prices also moved lower, with rice retailing at 5.1 per cent below last year's level in June. Salt and jaggery prices remained stable, while edible oils stayed high, supported by favourable international price movements.

 

On a month-on-month basis, June showed a modest 0.6 per cent rise in retail inflation. However, after adjusting for seasonal effects, the figure actually declined by 0.7 per cent, indicating that the rise was temporary and due to normal seasonal changes.

 

Tomato prices jumped by 36.1 per cent in June compared to May, marking the highest monthly increase since October 2024. This was attributed to early monsoon-related disruptions and usual seasonal factors. Onion prices remained almost flat, showing only a 0.4 per cent decline after a steeper 9.8 per cent fall in May.

 

The report cautioned that June and July are known for seasonal reversals in the prices of tomatoes, onions, and potatoes. It called for improvements in supply chain systems, including cold storage facilities and more decentralised vegetable production hubs, to reduce future volatility.

 

With CPI inflation staying well below the RBI's upper tolerance band and supply-side pressures largely subdued, the central bank appears to have some near-term flexibility to focus on growth-oriented policy measures, the report concluded.

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