<p>Data released by the National Statistical Office (NSO) further confirm the falling trend in inflation seen in the last few months. Retail inflation, measured by the Consumer Price Index (CPI), declined to a six-year low of 2.1 per cent in June, from 2.82 per cent in May. </p><p>June is also the fifth straight month which saw an inflation rate lower than the RBI’s target of 4 per cent. Inflation has now averaged 2.7 per cent in the first quarter, lower than the central bank’s expectation of 2.9 per cent. It has been falling since November 2024. </p><p>The previous low of 1.97 per cent was recorded in January 2019. The inflation in rural areas was lower than the national average, at 1.72 per cent, while it was higher in urban areas, at 2.56 per cent.</p>.<p>The moderation in food prices, with food and beverages showing a deflation of 0.2 per cent, has been the main cause of the fall in inflation. Prices of vegetables and pulses saw a sharp decline, while a favourable base effect also contributed to the trend. Food prices are likely to stay low in the coming months, as prospects are good on the agricultural front. </p><p>The south-west monsoon has covered much of the country. There was a deficiency in rainfall in the first half of June, but the all-India rainfall has been 9.5 per cent above the long-period average from the onset of the monsoon to this week. The kharif crop area has increased from last year. With the end of the Israel-Iran war, the threat of an increase in petroleum prices has receded – the optimism on the inflation outlook is likely to continue.</p>.<p>It should be noted that the prices of most other components under the CPI, other than those in the food basket, have seen an increase. They include education and healthcare costs and prices of many daily-use items. This means that the cost of living may not have come down even though the expenditure on food has declined. Food items have a high weightage of about 46 per cent in the CPI, and their prices have a big impact on the index. </p><p>A key question raised by the latest inflation data is whether it will influence the thinking of the RBI’s Monetary Policy Committee (MPC) when it meets next month. The MPC had lowered the policy rate by 50 basis points to 5.5 per cent last month. The committee had then said that after a cut of 100 basis points since February 2025, there was not much room left for further reduction in policy rates. Governor Sanjay Malhotra has also said that the RBI would wait and watch before taking a decision.</p>
<p>Data released by the National Statistical Office (NSO) further confirm the falling trend in inflation seen in the last few months. Retail inflation, measured by the Consumer Price Index (CPI), declined to a six-year low of 2.1 per cent in June, from 2.82 per cent in May. </p><p>June is also the fifth straight month which saw an inflation rate lower than the RBI’s target of 4 per cent. Inflation has now averaged 2.7 per cent in the first quarter, lower than the central bank’s expectation of 2.9 per cent. It has been falling since November 2024. </p><p>The previous low of 1.97 per cent was recorded in January 2019. The inflation in rural areas was lower than the national average, at 1.72 per cent, while it was higher in urban areas, at 2.56 per cent.</p>.<p>The moderation in food prices, with food and beverages showing a deflation of 0.2 per cent, has been the main cause of the fall in inflation. Prices of vegetables and pulses saw a sharp decline, while a favourable base effect also contributed to the trend. Food prices are likely to stay low in the coming months, as prospects are good on the agricultural front. </p><p>The south-west monsoon has covered much of the country. There was a deficiency in rainfall in the first half of June, but the all-India rainfall has been 9.5 per cent above the long-period average from the onset of the monsoon to this week. The kharif crop area has increased from last year. With the end of the Israel-Iran war, the threat of an increase in petroleum prices has receded – the optimism on the inflation outlook is likely to continue.</p>.<p>It should be noted that the prices of most other components under the CPI, other than those in the food basket, have seen an increase. They include education and healthcare costs and prices of many daily-use items. This means that the cost of living may not have come down even though the expenditure on food has declined. Food items have a high weightage of about 46 per cent in the CPI, and their prices have a big impact on the index. </p><p>A key question raised by the latest inflation data is whether it will influence the thinking of the RBI’s Monetary Policy Committee (MPC) when it meets next month. The MPC had lowered the policy rate by 50 basis points to 5.5 per cent last month. The committee had then said that after a cut of 100 basis points since February 2025, there was not much room left for further reduction in policy rates. Governor Sanjay Malhotra has also said that the RBI would wait and watch before taking a decision.</p>
