Retail inflation slows to 2.1% in June, opens room for more RBI rate cuts

India’s headline retail inflation rate slowed more than expected to a 77-month low of 2.1 per cent in June from 2.82 per cent in May as food prices fell 1.06 per cent from a year ago, aided by a favourable base effect, data released on Monday by the Ministry of Statistics and Programme Implementation (MoSPI) showed. The fall in inflation based on the Consumer Price Index (CPI) for the eighth consecutive month potentially opens up room for further rate cuts by the Reserve Bank of India (RBI) in the coming months. So far in 2025, the Monetary Policy Committee (MPC) has reduced the policy repo rate by 100 basis points (bps) to 5.5 per cent, although it tightened its stance to ‘neutral’ in June and said monetary policy is left with “very limited space to support growth”. However, with CPI inflation extending its run below the RBI’s medium-term target of 4 per cent to a fifth consecutive month, economists think average inflation for 2025-26 is likely to be much lower than the central bank’s forecast of 3.7 per cent. Story continues below this ad “We continue to expect the RBI to pause in the August policy as it watches the monsoon outturn to ascertain durability of food inflation trends. While earlier we were seeing room for a cut in the December policy, the June CPI print has increased the probability of RBI reducing repo rate by 25 bps in the October policy,” Suvodeep Rakshit, Chief Economist at Kotak Institutional Equities, said. Data also released on Monday by the commerce ministry showed wholesale prices fell in June compared to a year ago, with the Wholesale Price Index (WPI) based inflation rate, at -0.13 per cent, dropping into the deflationary zone. This was the first time in 20 months that wholesale inflation had fallen below zero. On the retail price front, June saw food prices fall for the first time since February 2019 on a year-on-year (YoY) basis thanks to a favourable base effect even as prices rose last month on a sequential basis. “The prices of vegetables were down 19 per cent YoY, the sharpest pace of decline since December 2022. In addition, prices of pulses were down 11.8 per cent YoY in the same period, fastest fall in prices in over seven years. The meat & fish segment also witnessed a fall in prices in June 2025, for the third straight month. Even the cereals inflation was down to a 41-month low of 3.7 per cent due to better production,” Paras Jasrai, Associate Director and Economist, India Ratings and Research, said. On a month-on-month basis, the Consumer Food Price Index was up 1.1 per cent in June, almost double the 0.6 per cent sequential increase seen in the overall CPI. However, economists see headline inflation falling even further. Story continues below this ad “Mandi prices so far are suggesting manageable July perishable food price pressures, with July month tracking 1.7-1.8 per cent as of now,” Madhavi Arora, Chief Economist at Emkay Global Financial Services, said. CPI inflation for rural areas has already fallen below 2 per cent – which is the lower bound of the RBI’s flexible inflation target of 2-6 per cent – to 1.72 per cent in June from 2.59 per cent in May. Urban retail inflation also declined to 2.56 per cent from 3.12 per cent. Meanwhile, core inflation – or inflation excluding food and fuel, whose prices can be volatile – edged up to 4.4 per cent in June, the highest since September 2023, according to calculations by The Indian Express. While core inflation is seen as an indicator of underlying demand in the economy, its continued rise in 2025 – it stood at 3.6 per cent in December 2024 – has primarily been due to increasing prices of precious metals. Gold inflation, for instance, rose to a 58-month high of 35.98 per cent in June, as per the latest CPI data. A June CPI inflation rate of 2.1 per cent means it averaged 2.7 per cent in April-June, lower than the RBI’s forecast of 2.9 per cent. Economists, who were already of the opinion that the Indian central bank’s forecast of 3.7 per cent for 2025-26 as a whole was too high, now see it being undershot by an even greater margin. According to Arora of Emkay Global, average CPI inflation in 2025-26 could be 80-100 bps lower than the RBI’s forecast. Falling inflation is also expected to raise real wages of households, according to Jasrai of India Ratings, whose calculations suggest that a 100 bps increase in real wages leads to a 106 bps increase in consumption demand. This boosts GDP growth by 60 bps, Jasrai said.