Consumer inflation eases to 8-year low of 1.55%; food deflation at 1.76%: Key takeaways

Domestic consumer inflation eased to 1.55 per cent in July, its lowest level recorded in eight months, showed official data released on Tuesday. In June, retail inflation — or the rate of increase in the prices consumers pay for select goods and services — had stood at 2.1 per cent. The latest reading is in line with the Reserve Bank of India’s forecasts. 

Food Inflation | What CPI Food signals 

Food deflation — or negative inflation — stood at 1.76 per cent in the same month, according to the Ministry of Statistics. The latest reading marks the lowest level of food inflation recorded since January 2019, mainly on the back of a base effect and a decline in the prices of pulses, vegetables, cereals, eggs and sugar.

Food inflation — or inflation in food-related items across categories — is measured by the CPI Food index, which is a subset of the overall CPI index. 

With a weightage of almost 46 per cent, the food basket forms the lion’s share of the overall CPI index. 

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RBI and inflation

The RBI — which tracks consumer inflation data primarily to formulate its monetary policy — has projected domestic retail inflation at 3.1 per cent in FY26. The RBI governor-led Monetary Policy Committee projects CPI inflation at 2.1 per cent in Q2, 3.1 per cent in Q3 and 4.4 per cent in Q4 this financial year, and 4.9 per cent in the first quarter of FY27. 

The RBI aims to contain inflation within 200 basis points of 4.0 per cent over the medium term. 

The central bank believes that steady progress in monsoon and robust kharif sowing are expected to keep food prices in check, helping in containing inflation at moderate levels. While unveiling the August policy announcements, RBI Governor Sanjay Malhotra highlighted that the central bank’s inflation outlook for FY26 had turned more benign than in June.

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However, the central bank expects CPI inflation to “edge up” above 4.0 per cent by the March quarter and beyond.

In the August review, the RBI’s MPC voted unanimously to leave the repo rate at 5.5 per cent and continue with its ‘neutral’ policy stance.