Cool Winds in a Hot Economy: Inflation Hits Multi-Year Low as RBI Rethinks Forecasts

Image Source : KNN India

India's retail inflation moderated sharply to 2.10% in June 2025, the lowest since January 2019. The sharp drop, led by softening food prices and support base effect, is a big relief for policymakers and consumers alike.

Significant developments:

Headline CPI inflation declined from 2.82% in May and 5.08% in June 2024, which indicates an underlying trend of disinflation.
Food inflation turned negative at 1.06%, from 0.99% last month, with steep falls in vegetables, pulses, cereals, and spices.
Rural inflation eased to 1.72%, and urban inflation was 2.56% as there was widespread moderation geographically.

Sectoral structure:

Housing inflation rose by a slight 3.24%, while education and health inflation were at 4.37% and 4.43% respectively.

The cost of transport and communication increased marginally to 3.90%, and fuel and light inflation decreased to 2.55%.

Policy implications:

Reserve Bank of India updated its FY26 CPI forecast to 3.70% from 4%, while Q1 average inflation was at 2.9%.
Evenhandedness is seen in the central bank's policy neutrality, though further rate cuts lie in the future in the case of this disinflation continuing.
Analysts caution that future price directions may be guided by global uncertainties and supplyside risks.

With inflation now securely below the RBI's 4% target for five months, the June data contributes to India's macroeconomic stability and further reinforces the case for growthfriendly policy support.

Sources: Economic Times, Investing.com, Business Upturn.