With retail inflation falling to a six-year low in June, pressure mounts on the RBI to reassess its stance
Driven by a favourable base effect and falling prices of vegetables, pulses, and other essentials, India’s retail inflation based on Consumer Price Index (CPI), dipped to 2.1 per cent in June 2025, according to the data released on Monday. June’s CPI print is lower than May’s 2.82 per cent. It is the lowest year-on-year inflation after January 2019. The expectations of another rate cut in the August Monetary Policy Meeting (MPC) have gained momentum following positive numbers.
The year-on-year (YoY) inflation rate based on all India Consumer Food Price Index (CFPI) for June 2025 over June 2024 stood at -1.06 per cent. Corresponding inflation rates for rural and urban are -0.92 per cent and -1.22 per cent, respectively. The Ministry of Statistics and Programme Implementation stated that the food inflation in June 2025 is the lowest after January 2019.
“The significant decline in headline inflation and food inflation during the month of June, 2025, is mainly attributed to a decline in inflation of vegetables, pulses and products, meat and fish, cereals and products, sugar and confectionery, milk and products and spices. Moving ahead, assuming a normal monsoon, CPI inflation is expected to remain well within the RBI’s target band,” said Hemant Jain, President, PHD Chamber of Commerce and Industry (PHDCCI).
Easing Food Prices
Within the CPI basket, the food and beverages category entered deflation, contracting by 0.2 per cent YoY. This was led by deflation in key items such as vegetables (-19 per cent YoY), pulses (-12 per cent), spices (-3 per cent), and meat (-1.6 per cent). However, double-digit inflation in edible oils (17.8 per cent YoY) and fruits (12.6 per cent) has narrowed the disinflation in the food basket.
However, the core-CPI inflation (CPI excluding food and beverages, fuel and light, and petrol and diesel indices for vehicles) hardened to a 21-month high of 4.6 per cent in June 2025 from 4.3 per cent in May 2025, Icra stated in a report.
“Looking ahead, food inflation is likely to remain contained, supported by healthy agricultural activity and a favourable base. The monsoon has so far been in surplus (10 per cent above normal), although regional distribution issues persist, with deficits observed in eastern (-24 per cent) and southern India (-10 per cent). Close monitoring of the monsoon’s spatial and temporal distribution will remain crucial,” CareEdge Ratings said in a report.
Expectations Of Further Rate Cuts
In line with the front-loaded rate cut in June 2025, Icra has not ruled out the possibility of a final 25 basis points (bps) rate cut in the August 2025 meeting itself. Following the marginally lower-than-projected CPI inflation print for Q1FY26, Icra expects the Q2FY26 print to materially undershoot the MPC’s current forecast of 3.4 per cent amid the benign outlook for July 2025, which is likely to prompt the MPC to cut its FY2026 CPI inflation forecast further from 3.7 per cent currently.
“With a firmly benign inflationary trend envisaged going ahead, notwithstanding the tumult on part of trade led restrictions and non-linear pass-through of such vagaries, the plot seems to be spiced with a further 25 bps rate cut (sooner than later) to give an adrenaline boost to the economic juggernaut as global developments necessitate us to build today for future,” Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India (SBI), said in a report.
However, CareEdge Ratings highlighted that downside risks from supply chain disruptions due to trade policy uncertainties and geopolitical tensions remain key monitorables. On the monetary policy front, the RBI’s frontloaded rate cuts are likely to limit the room for further easing unless growth weakens materially, it said. SBI emphasised that given these benign inflation expectations on the back of a 50 bps rate cut recently in the June policy, the current focus of the RBI is to support the momentum in capital formation for more durable growth.
Rural Vs Urban Inflation
The official data showed that headline and food inflation in the rural sector fell sharply in June 2025. The headline inflation stood at 1.72 per cent in June 2025, while the same was 2.59 per cent in May 2025. The CFPI-based food inflation in the rural sector was observed as -0.92 per cent in June 2025 in comparison to 0.95 per cent in May 2025. On the urban front, a significant decline from 3.12 per cent in May 2025 to 2.56 per cent in June 2025 was observed in the headline inflation of the urban sector.
A sharp decline was also seen in food inflation from 1.01 per cent in May 2025 to -1.22 per cent in June 2025. The data revealed that the year-on-year housing inflation rate for June 2025 was 3.24 per cent as compared to 3.16 per cent in May 2025. The housing index is compiled for the urban sector only. YoY education inflation rate for June stood at 4.37 per cent as compared to 4.12 per cent in May 2025. It is combined education inflation for both rural and urban sectors.
Wholesale Inflation Cools Down
Led by the decrease in prices of food articles, mineral oils, manufacture of basic metal, India’s wholesale inflation has dipped to -0.13 per cent in June on a year-on-year (YoY) basis, data from the Ministry of Commerce and Industry showed. The June figures mark a reversal from 0.39 per cent Wholesale Price Index (WPI) inflation in May 2025. The month-over-month change in WPI for June 2025 stood at (-) 0.19 per cent as compared to May 2025, the ministry said.
When it comes to the WPI food index, the ministry added that the food index, consisting of ‘food articles’ from the primary articles group and ‘food product’ from the manufactured products group, has increased from 189.5 in May 2025 to 190.2 in June 2025. The rate of inflation based on the WPI food index decreased from 1.72 per cent in May to (-0.26 per cent) in June 2025.
Outlook For July And Beyond
As far as the outlook for retail inflation in July is concerned, the reports indicated that the numbers are set to dip further. SBI emphasised that the upcoming July 2025 CPI inflation data is set to breach the lowest ever historical print. “We expect average CPI inflation for FY26 would be around 3 per cent to 3.2 per cent as against the FY25 average of 4.6 per cent,” it said.
Based on early data for July 2025, Icra expects the CPI inflation to ease further and bottom out at 1.9 per cent. Icra stated that similar to the trend in June 2025, the seasonal hardening in food prices in July 2025 (up to 13 July) is relatively muted versus that seen in July 2024. Consequently, the F&B print is expected to remain benign, unless there is a sharp spike in vegetable prices in the remaining part of the month.
