Retail inflation in July slows to 8 years low of 1.5%, drops below RBI's comfort zone

New Delhi: Retail inflation slowed to an 8-year low of 1.55 percent in July, falling below the Reserve Bank's comfort zone for the first time since January 2019, helped by subdued prices of food items, according to government data released on Tuesday.

The government has tasked the Reserve Bank to ensure that the consumer price index-based retail inflation remains at 4 percent with a margin of 2 percent on either side.

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The retail inflation was 2.1 percent in June and 3.6 percent in July 2024.

The July 2025 inflation is the lowest since June 2017, when it was at 1.46 percent.

"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 National Statistics Office (NSO).

As per the data, year-on-year food inflation in July was negative at 1.76 percent. It is the lowest since January 2019.

Inflation in rural India was at 1.18 percent and 2.05 percent in urban areas in July.

In July, highest inflation was recorded in Kerala at 8.89 percent followed by Jammu and Kashmir (3.77 percent) and Punjab (3.53 percent). The lowest CPI was in Assam at (-) 0.61 percent.

Commenting on the CPI data, Aditi Nayar, Chief Economist, Icra said the retail inflation was dampened by the continued year-on-year decline in food prices on an elevated base, even as vegetable prices displayed a surprising uptick.

"The expected uptrend in the forward-looking inflation trajectory, particularly the 4%-plus prints for Q4 FY 2026 and Q1 FY 2027, would limit the space for rate cuts in the upcoming policy meetings," she said.

Earlier this month, the Reserve Bank had left the short-term lending rate (repo) unchanged at 5.5 percent as it appeared to have taken a wait-and-watch approach to assess the full unveiling of US President Donald Trump's trade policies as well as transmission of past rate cuts.

The RBI has cumulatively reduced the repo rate by 100 basis points since February.

Paras Jasrai, Associate Director at India Ratings and Research, said inflation fell below the target range of the monetary policy committee.

"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 percent in July 2025 indicating stable demand conditions in the economy," he said.

While unveiling the August monetary policy, RBI Governor Sanjay Malhotra had said CPI inflation is likely to edge up above 4 percent in the fourth quarter of fiscal 2025-26 and beyond, as unfavourable base effects, and demand side factors from policy actions come into play.

NSO collects price data from selected 1,114 urban markets and 1,181 villages covering all states and UTs.

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