India’s Consumer Price Index (CPI) inflation eased to 1.55% YoY in July 2025 from 2.10% in the previous month, primarily driven by continued deflation in food prices.

Food inflation fell to -0.8% YoY in July 2025 from -0.2% YoY in June. Within food, a lower contribution from vegetables and pulses drove the decline in overall inflation. Vegetable inflation eased to -20.7% YoY in July from -18.9% YoY in June, while pulses inflation dropped to -13.8% YoY from -11.8% over the same period.

Core inflation (excluding food and fuel) eased to 4.2% YoY from 4.5% in the previous month, though it remained primarily supported by higher gold prices. Excluding gold and silver, core inflation stood at a modest 3.1% YoY.

We expect inflation to significantly undershoot the 4% target in FY26. The monsoon season so far has been close to normal, except for a rainfall deficit in the ‘eastern and north-eastern’ region. Assuming normal rainfall for the remainder of the season, we see limited upside risks to inflation and scope for at least one more 25-bps rate cut in the current easing cycle.

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