Retail inflation in India dropped to 1.55% in July 2025, the lowest in over eight years, mainly due to falling food prices. This is below the RBI’s 2–6% comfort zone, reflecting stable prices and a favourable agricultural outlook.
Background & Data Highlights
- CPI Inflation (July 2025): 1.55%, down from 2.1% in June 2025.
- Lowest level since June 2017.
- Food & Beverages inflation: -0.8% in July vs. -0.2% in June and 5.1% in July 2024.
- Key Deflation Drivers:
- Vegetables: -21%
- Pulses: -14%
- Spices and meat prices also fell.
- Core inflation (excluding food & fuel): 4.1% in July, near RBI’s 4% target.
- Favourable Factors:
- Good monsoon progress.
- Adequate reservoir storage.
- Strong kharif crop sowing.
- Statistical high base effect from last year’s higher prices.
What is Inflation?
- A sustained rise in the general price level of goods and services over time.
Types:
- Demand-Pull Inflation – when demand exceeds supply.
- Cost-Push Inflation – when production costs increase.
Impact:
- Reduces purchasing power of money.
- Example: If inflation rises from 5% to 10%, the same ₹100 note will buy fewer goods than before.
- For instance: Last year, ₹100 could buy 5 kg of rice. Due to price rise, ₹100 now buys only 4 kg of rice.
- This means the purchasing power of money has reduced — your money now gets you less.
How is Inflation Measured in India?
- Consumer Price Index (CPI) Tracks retail prices of a fixed basket of goods and services; used by RBI for inflation targeting.
- Wholesale Price Index (WPI) Measures price changes at the wholesale level.
- Producer Price Index (PPI) Tracks prices received by producers (not yet widely used in India).
Why are Food Prices Volatile?
- Seasonal variations – Harvest cycles cause supply fluctuations.
- Weather dependence – Monsoon failure or excess rain impacts crops.
- Perishability – Limited storage for vegetables, fruits, and milk leads to sharp price swings.
- Global price trends – Edible oil and pulses affected by import costs.
- Supply chain disruptions – Strikes, transport bottlenecks, or geopolitical events.
How to Control Inflation
Monetary Measures (RBI-led)
- Adjusting repo rate and reverse repo rate to influence borrowing and spending.
- Open market operations to manage liquidity.
- Tightening credit availability during high inflation.
Fiscal Measures (Government-led)
- Rationalising taxes and subsidies to influence prices.
- Managing public expenditure to avoid excess demand.
- Cutting import duties on essential commodities during shortages.
Supply-Side Measures
- Improving storage & logistics for perishable goods.
- Importing essential food items during shortages.
- Maintaining buffer stocks of grains via FCI.
Government Measures to Keep Inflation in Check
- Inflation Targeting Framework: Under RBI Act, target set at 4% ± 2%.
- Price Stabilisation Fund: Used for market intervention to control prices of pulses, onions, etc.
- Minimum Export Price (MEP) & export bans on certain food items during shortages.
- Agri-Market reforms (e-NAM, APMC reforms) for better price discovery.
- Subsidies on fertilisers, seeds, and fuel to reduce input costs.
Way Forward
- Maintain agriculture supply chain resilience.
- Strengthen monsoon forecasting and climate-resilient farming.
Conclusion:
Lower prices increase purchasing power. Allows scope for maintaining or lowering interest rates to boost growth. But excessively low inflation could hint at weak demand, and a sudden weather shock could reverse the trend.
