India’s headline retail inflation cooled to an eight-year low of 1.55% in July 2025, but the headline number masks a far sharper and politically sensitive story — food prices are in their deepest deflation since January 2019, a trend economists warn may soon reverse.
Data from the National Statistics Office show the Consumer Food Price Index (CFPI) fell 1.76% year-on-year, driven by steep declines in vegetable and pulse prices on last year’s high base. Vegetables alone were down 20.7%, pulses by 13.8%, and onions, tomatoes and potatoes plunged by more than 30% each. This deflationary drag was strong enough to offset double-digit price gains in edible oils (up 19.2%) and fruits (up 14.4%).
Aditi Nayar, Chief Economist at ICRA, said the fall in headline CPI was “not as rapid as expected” and warned that July’s food deflation is unlikely to persist. “We expect the CPI food and beverages category to swing back to positive territory in August, with headline inflation inching up towards 2%,” she said, projecting an FY26 average of 3.0–3.2%. Kharif sowing is on track to surpass last year’s acreage, but much depends on the spatial and temporal distribution of monsoon rains and their timely withdrawal to ensure harvesting.
The official data underline how uneven the food price picture has become. While staple cereals posted moderate inflation of about 3%, edible oils and coconuts saw extraordinary jumps, with coconut oil prices surging over 130% year-on-year. At the other extreme, high-frequency perishables saw price collapses — a reflection of last year’s weather-induced spike now unwinding, and of better supply arrivals in key markets.
Madan Sabnavis, Chief Economist at Bank of Baroda, noted that negative food inflation of 1.8% was the main reason July’s overall CPI was so subdued. “Vegetables and pulses drove the fall, aided by the high base effect,” he said, predicting the trend will extend into August before stabilising. But he flagged that “pain points remain” — edible oils and fruits continue to see double-digit inflation, underlining the risk that the aggregate food price index could turn quickly once the base effect fades.
The July print also shows significant state-level disparities. Kerala recorded 8.9% inflation — inflated by a 36% jump in gold prices — while four states, including Assam and Bihar, were in outright deflation. Rural India saw lower headline inflation (1.18%) than urban areas (2.05%), but both experienced deeper food price falls than in June.
For the Reserve Bank of India, the picture complicates the monetary policy outlook. Core inflation — excluding food and fuel — remains sticky above 4%, while forward-looking forecasts point to a rebound in food prices pushing headline CPI above 4% in late FY26 and early FY27. That would leave little room for rate cuts despite July’s historic low.
Joe Maher of Capital Economics called the latest numbers “a larger-than-expected fall” that theoretically “opens the door” to further rate cuts. But he noted that the RBI’s recent hawkish stance, combined with expectations of an inflation rebound, means policy is likely to remain on hold “well into 2026.”
The underlying tension is clear: India’s food inflation cycle is in a trough, but structural vulnerabilities — from erratic monsoons to supply chain bottlenecks and import tariff shocks — make the next upswing inevitable. For policymakers, July’s benign headline number may be less a cause for celebration than a brief pause before the return of price pressures.