A rise in India’s July retail inflation was a foregone conclusion, but its modest increase, at 4.45%, up from 4.38% in June, is still the highest in 19 months, since December 2024. This is the second consecutive month that retail inflation has stayed above the Reserve Bank of India (RBI)’s 4% target, even while remaining comfortably within its 2%-6% tolerance range. Predictably, it has again been driven by food, fuel and transport, even as core inflation, excluding precious metals, has remained below 3%. What is telling is the extent of rural, food-led inflation, which rose from 5.45% in June to 5.79% in July, while urban food inflation decreased marginally from 5.09% to 5.05%. Staples such as onion (22.54%), garlic (35.36%) and ginger (83.62%) fuelled the rise, even as potato (-16.56%) and tomato (-4.59%) moderated. Transport, however, continues to have a wider impact, pointing to elevated input-cost pressures. Transport inflation quickened to 4.43% in July from 4.31% in June, while the crucial subdivision, transport services for goods, rose from 7.70% to 7.77%. Despite the July 1 cut in commercial LPG prices of about ₹183, food and beverage serving services inflation quickened to 7.75% in July, indicating that restaurants are yet to recoup revenues and margins lost following the steep operating costs from March through May. Commercial LPG was cut by a further ₹202 on August 1, but this is unlikely to immediately bring down menu prices.

The monsoon remains a concern, with parts of western, central and southern India remaining rain-deficient. Precious metals inflation, particularly gold (32.98%) and silver (109.84%), moderated, but remains extraordinarily high. Crude prices were relatively stable during the July CPI reference period, but began rising again in August. More worryingly, Ukraine-related disruptions around Russia’s Black Sea export infrastructure, particularly Novorossiysk, could raise freight and risk premiums for Russian crude. Russia supplied nearly half of India’s crude imports in June, making such disruptions relevant to India’s landed energy costs. The rupee also depreciated by about 1.6% between the June 15 and July 15 CPI reference dates, further amplifying imported inflation. In the background, there are signs of weakening economic momentum, with the HSBC composite PMI showing a sharp fall from 57.1 in June to 54.3 in July, its weakest expansion since March 2022. While the PMI is a high-frequency indicator and need not reflect a long-term trend, it is nevertheless worth taking note of. The RBI’s Monetary Policy Committee, which held the repo rate at 5.25% for the fourth consecutive meeting in August, is therefore likely to remain on hold through the second quarter of FY27, as it weighs persistent supply-side inflation against weakening economic momentum.

The retail inflation data for October once again underscore the fact that the update of the Consumer Price Index (CPI) cannot happen fast enough. The data show that the rate of overall inflation fell to just 0.25%, the lowest it has been since at least January 2012. On the face of it, this would be cause for celebration, but a deeper look reveals this drastic fall to be a statistical anomaly rather than an actual fall in price levels. The food and beverages category saw prices falling 3.7% in October, the largest in the history of the CPI’s current series. However, the main reason for this contraction was not so much that food prices have fallen, but because food inflation in October last year was a blistering 9.7%. This high base ensured that food inflation in October 2025 was negative, even though vegetable prices in markets have been on the rise recently. With the food and beverages category enjoying a weightage of nearly 46% in the overall CPI basket, this statistical anomaly in food inflation was responsible for pulling the entire index down. Indeed, inflation in nearly every other major sub-group — fuel and light, housing, tobacco, and the miscellaneous category — was higher this October than last. The impact of the GST rate cuts has, so far, been seen only in the clothing and footwear category — the only one apart from food to see inflation lower than last year. All of this shows just how skewed the inflation measure is. Not only is it outdated, with the base year set as 2012, but the weightages are no longer accurate and more often obscure rather than clarify. The disconnect between the CPI and reality can perhaps best be shown by the fact that people the Reserve Bank of India (RBI) had surveyed in September had said that their perceived inflation rate was 7.4% — a far cry from what the CPI reported.

The urgency behind the update is not just because of the vast gap between measured and perceived inflation. It is also because the RBI’s Monetary Policy Committee uses the CPI as its benchmark when deciding what to do with interest rates. Its next meeting is in December and it will have to decide whether to keep rates unchanged or to cut them. It will have to contend with growth data clouded by the temporary impact of the GST rate cut-related demand boost. Having to also parse through inflation data beset by statistical anomalies will only make accurate policymaking that much harder. The Ministry of Statistics and Programme Implementation has said that the new series of the CPI will be ready by the first quarter of the next financial year. The sooner it happens, the better.