Falling prices of vegetables and pulses amongst other food items has brought down India’s retail inflation to an eight-year-low of 1.55 per cent in July, according to government data.
The figure, which is the lowest since June 2017, is below the Reserve Bank of India’s mandated tolerance band of 2 per cent – 6 per cent, but not expected to impact the apex bank’s recent decision to keep interest rates unchanged after having slashed them thrice this year.
At a meeting earlier this month, the central bank committee members had forecast inflation this financial year to be at 3.1 per cent, lower than its previous estimate of 3.7 per cent.
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Meanwhile, the latest data shows vegetable prices to have fallen 20.69 per cent compared with a 19 per cent year-on-year fall in June, which is expected to hurt farmers.
In July, highest inflation was recorded in Kerala at 8.89 per cent followed by Jammu and Kashmir (3.77 per cent) and Punjab (3.53 per cent). The lowest CPI was in Assam at (-) 0.61 per cent.
"The significant decline in headline inflation and food inflation during the month of July, 2025, is mainly attributed to favourable base effect and to decline in inflation of pulses and products, transport and communication, vegetables, cereal and products, education, egg and sugar and confectionery," said the National Statistics Office (NSO).
The prices of pulses have dropped 13.76 per cent, compared to a 12 per cent decline in the previous month.
Food prices, which were the main reason for the drop in inflation, fell 1.76 per cent in July, compared to a revised fall of 1.01 per cent in June. On a month-on-month basis however, vegetable prices rose although the cost of pulses continued to decline.
Core inflation, which excludes volatile items such as food and energy and is an indicator of domestic demand, was at 4 per cent - 4.12 per cent in July versus 4.4 per cent - 4.5 per cent in the previous month.
With the food prices entering deflationary territory, while food production costs rise has led to a rise in rural consumption index, say economists.
"Normally, this would have sparked alarming concerns for demand in the economy, however, the core inflation which excludes volatile segments such as food and energy, stood at 4.1 per cent in July 2025 indicating stable demand conditions in the economy," said Paras Jasrai, Associate Director at India Ratings and Research.
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RBI’s Governor, Sanjay Malhotra, said earlier this month he believed the growth prospects of the domestic economy to be bright.
But, with US President Donald Trump announcing a massive 50 per cent tariff rate on Indian exports to the US, the Indian government estimates at least 55 per cent of the country’s goods exported to be subject to the tariffs.
This mismatch of low inflation and growth impact from tariffs may leave room for one more rate cut by the central bank before the year ends.
NSO collects price data from selected 1,114 urban markets and 1,181 villages covering all states and UTs.
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