India's retail inflation (CPI) dropped sharply to 2.1% in June 2025, marking the lowest year-on-year inflation rate since January 2019. This significant cooling is driven primarily by deflation in food prices, which fell below zero for the first time in over six years, indicating a rare moment when food became cheaper on a year-on-year basis.
Key Highlights:
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Food inflation:
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Overall: -1.06%
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Rural: -0.92%
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Urban: -1.22%This is the first negative food inflation since February 2019, reflecting substantial price drops in key items like vegetables, pulses, meat, fish, cereals, sugar, milk, and spices.
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Fuel inflation:
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Eased to 2.6%, helped by declining electricity and firewood prices.
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However, LPG prices rose slightly.
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Core inflation (excluding food and fuel):
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Rose mildly from 4.2% to 4.4%, reflecting sticky prices in services and some non-food goods.
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Imported inflation:
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Continued to rise for the 13th straight month, now contributing 71% of total CPI inflation (up from 50% in May).
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Rising gold and silver prices were the biggest contributors.
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Why Lower CPI Doesn’t Mean Cheaper Prices:
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CPI measures inflation year-on-year, meaning it reflects how fast prices are rising compared to the same month a year ago—not whether prices are falling.
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For example, CPI was 5.08% in June 2024, so even a 2.1% rise this year keeps prices significantly above pre-2024 levels. This results in price stability at a high level, not necessarily relief for consumers.
Policy and Economic Implications:
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The RBI, having already cut rates by 100 basis points, may find further room for monetary easing, given the benign inflation outlook.
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Crisil forecasts average CPI inflation for FY26 at 4%, down from 4.6% in FY25, citing:
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Healthy rabi harvests (especially wheat).
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Above-normal monsoon (110% of long-period average as of July 13).
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Strong kharif sowing activity.
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Subdued Brent crude oil forecast at $60–65/barrel (assuming no geopolitical flare-ups).
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Outlook:
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The July CPI could set a new historical low, according to SBI, indicating continuing disinflation.
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With favourable weather and stable global commodity prices, inflation may remain under control throughout the fiscal year.
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However, risks remain from imported inflation, particularly from precious metals and fertiliser prices, and from any climate-related disruptions during the monsoon.
In sum, while the falling CPI is good news for macroeconomic stability and interest rates, consumers are unlikely to feel substantial price relief immediately. Instead, it signals that the pace of price increases is slowing, not that prices are going down overall.
