India July inflation falls to 97-month low of 1.55%

13 Aug 2025 , 09:34 AM

JUNE 2025 CPI INFLATION FALLS TO 97-MONTH LOW

It has been one of the most phenomenal inflation fall seen in Indian markets. From a high of 6.21% in October 2024, CPI inflation has fallen by 466 bps to 1.55%. This has been triggered by food inflation plummeting from 10.87% to -1.76% in the same period. The July 2025 inflation at 1.55% is the second lowest ever under the new series, and just slightly above the lowest ever consumer inflation of 1.46% recorded in June 2017.

Needless to say, it was the sharp fall in food prices that triggered the fall in inflation; thanks to a strong Rabi last year and robust Kharif sowing this year. While fuel inflation also remains subdued, the icing on the cake in July 2025 was the core inflation also falling sharply from 4.4% to 4.1%. Key food items vulnerable to inflation, like cereals and vegetables, have been largely under control. Gold prices are also in a range now.

FOOD INFLATION DIVES DEEPER INTO NEGATIVE ZONE

Headline inflation is at a 97-month low; the lowest since June 2017. Here is a reality check.

Month	Food Inflation (%)	Core Inflation (%)	Headline Inflation (%)
Jul-24	5.42%	3.39%	3.60%
Aug-24	5.66%	3.40%	3.65%
Sep-24	9.24%	3.49%	5.49%
Oct-24	10.87%	3.67%	6.21%
Nov-24	9.04%	3.64%	5.48%
Dec-24	8.39%	3.58%	5.22%
Jan-25	6.02%	3.67%	4.26%
Feb-25	3.75%	3.95%	3.61%
Mar-25	2.69%	4.10%	3.34%
Apr-25	1.78%	4.07%	3.16%
May-25	0.99%	4.17%	2.82%
Jun-25	-1.01%	4.40%	2.10%
Jul-25	-1.76%	4.10%	1.55%

Data Source: MOSPI & Ministry of Finance Estimates

Here is what we read from the inflation time series table.

There are interesting takeaways from the inflation data. After months of staying elevated, the core inflation has also tapered in July 2025, which is surprising considering the macro risks and the supply chain challenges. Also, the year ago period saw a sharp fall in inflation, so this fall in inflation in July 2025 should have actually been a lot more magnified.

NON-FOOD INFLATION: URBAN VERSUS RURAL

Between June 2025 and July 2025, headline inflation moderated from 2.10% to 1.55%. During this period, headline rural inflation fell from 1.72% to 1.18%, while headline urban inflation fell from 2.56% to 2.05%. What about food inflation? Between June 2025 and July 2025, headline food inflation moderated from -1.01% to -1.76%. Rural food inflation dipped from -0.87% to -1.74%, while urban food inflation dipped from -1.17% to -1.90%.

Non-Food Basket	Non-Food Weights	Rural Inflation	Urban Inflation	Headline Inflation
Clothing	6.32	2.38	2.88	2.58
Footwear	1.04	1.93	2.53	2.17
Clothing and footwear	7.36	2.34	2.86	2.50
Housing	–	–	3.17	3.17
Fuel and light	7.94	2.22	3.36	2.67
Household goods and services	3.75	2.22	3.02	2.61
Healthcare	6.83	4.53	4.65	4.57
Transport and communication	7.60	2.22	2.00	2.12
Recreation and amusement	1.37	2.12	2.58	2.38
Education	3.46	3.20	4.59	4.00
Personal care and effects	4.25	15.02	15.20	15.12
Miscellaneous	27.26	5.06	4.91	5.01

Data Source: MOSPI & Ministry of Finance Estimates

In the non-food basket; urban inflation has been higher in clothing, footwear, fuel, household goods, healthcare, recreation, and education. On the other hand, rural inflation is higher for transport & communication and other items. The big inflation number on personal effects is still the lag effect of the gold price rally.

FOOD BASKET: HOW RURAL AND URBAN INDIA STACKED UP?

Food basket, with a weightage of 47.25%, is a major swing factor for CPI inflation reading.

Food Basket	Food Weights	Rural Inflation	Urban Inflation	Headline Inflation
Cereals and products	12.35	2.93	3.19	3.03
Meat and fish	4.38	-0.70	-0.46	-0.61
Egg	0.49	2.03	2.59	2.26
Milk and products	7.72	2.59	3.00	2.74
Oils and fats	4.21	21.11	15.85	19.24
Fruits	2.88	15.82	12.89	14.42
Vegetables	7.46	-21.10	-20.04	-20.69
Pulses and products	2.95	-13.57	-14.13	-13.76
Sugar and Confectionery	1.70	3.30	3.10	3.28
Spices	3.11	-3.36	-2.58	-3.07
Non-alcoholic beverages	1.37	4.32	4.88	4.60
Prepared meals	5.56	3.90	4.92	4.35
Food Basket	47.25	-1.74	-1.90	-1.76

Data Source: MOSPI & Ministry of Finance Estimates

How do rural and urban inflation compare on the food basket? Rural inflation is comparatively higher in case of oils & fats, fruits, and sugar & confectionary. On the other hand, urban inflation is higher in case of cereals, meat, eggs, milk, vegetables, spices, non-alcoholic beverages, and prepared meals. Rural inflation for high protein foods is lower.

CAN YOU READ THE LIPS OF THE RBI MPC?

In our inflation note last month, we had strongly hinted at a 25 bps rate cut by the RBI in the August policy. However, the RBI has opted to maintain status quo considering the macro uncertainty around the Trump tariffs. However, the fall in headline inflation to 1.55% and the fall in food inflation to -1.76% is just too dovish to be true. RBI may now seriously consider a rate cut of 25 bps in October, or even earlier if the macro risks warrant. By then, there would be greater clarity on the tariff picture, and RBI would be in a better position to sync monetary policy with fiscal policy to boost growth!