India’s Consumer Price Index (CPI) inflation eased to 2.10% YoY in June 2025 from 2.82% in the previous month. For Q1FY26, inflation averaged 2.7% YoY, undershooting the RBI’s June policy projection of 2.9%.

The decline in headline inflation was driven by a fall in food inflation to -0.2% YoY in June 2025 from 1.5% YoY in May 2025. Within food, a lower contribution from vegetables drove the decline in headline inflation, followed by pulses. Vegetable inflation eased to -19.0% YoY in June 2025 from -14.0% YoY in May, on account of a muted 7% MoM rise in vegetable prices, compared to a sharper 14% MoM increase in June last year. Pulses inflation remained steady at -12% YoY.

Core inflation (which excludes food and fuel) picked up to 4.5% YoY from 4.3% in the previous month. Underlying inflation pressures remained subdued, as indicated by a refined measure of core inflation (which also excludes transportation fuel and valuables), recorded at 3.6% YoY in June 2025.

We expect inflation to significantly undershoot the 4% target in FY26. The RBI will likely adopt a ‘wait and watch’ approach in the near term. A further 25 bps cut remains on the table if growth risks intensify.

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