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India: Inflation decelerates for ninth month in July
Latest reading: Inflation fell for the ninth month running in July and hit a just-over eight-year low of 1.6%, down from 2.1% in June. The reading undershot market expectations and fell below the Reserve Bank of India’s 2.0–6.0% target, possibly pushing it to cut rates in Q4.
Prices for food and beverages declined more sharply in July, reflecting recently strong harvests following last year’s strong monsoon. Moreover, costs for transport grew more softly, pointing to the effect of recently falling global oil prices.
Accordingly, the trend pointed down slightly, with annual average inflation coming in at 3.9% in July (June: 4.1%).
Lastly, consumer prices increased 0.93% over the previous month in July, accelerating from June’s 0.62% rise. July’s result was the highest since October 2024.
Outlook: Since April, our panelists have slashed their forecasts for India’s inflation in FY 2025 (April 2025–March 2026). Trump’s “reciprocal” tariffs, introduced in April, plus OPEC+’s acceleration of output hikes have depressed the outlook for crude oil prices, reducing fuel costs for net-importer India.
That said, inflation is still set to rise from current lows to above the Reserve Bank of India’s 4.0% target in January–March 2026 (Q4 FY 2025), at which point the lagged effect of lower interest rates will probably begin stoking price pressures.
Overall, in fiscal year 2025, inflation is projected to average below target. Looking ahead, key risks include weather developments—vital for agriculture—as well as U.S. trade policy due to its impact on external demand.
