What explains the sharp drop in India’s retail inflation in July 2025?

India’s retail inflation saw a dramatic fall to 1.55% in July 2025, marking its lowest level since 2017. This came as a surprise to many, since most analysts had expected a slightly higher rate with average expectations around 1.76%. Falling food prices, especially staples like pulses, vegetables, and cereals, mostly led the decline, with a strong harvest and stable supply chains helping this trend.

Both rural and urban consumers benefited from lower food inflation, which registered at -1.76%. Transport, communication, and fuel maintained steady costs, while core inflation remained largely unchanged. The Reserve Bank of India kept interest rates unchanged, feeling confident that the benign inflation outlook would help support economic stability during a year marked by global trade tensions, including new tariffs from the United States.

Looking ahead, experts anticipate that inflation might rise towards the end of the fiscal year as base effects fade and food prices potentially rebound. At its most recent policy meeting, the Reserve Bank of India cut its full-year inflation forecast to 3.1 percent from 3.7 percent earlier. The central bank now expects inflation to average 2.1 percent in the second quarter, rise to 3.1 percent in the third, and end the fiscal year at 4.4 percent in the fourth quarter. For now, though, the easing inflation offers some relief to Indian households and gives policymakers more space to help the economy grow in spite of international challenges and changing trade relations.