India’s retail inflation accelerated to 4.45% in July, led by higher food and fuel prices, surpassing the Reserve Bank of India’s 4% midpoint target for the second successive month since January 2025, according to provisional data released by the ministry of statistics and programme implementation on Wednesday.
Inflation, measured by the Consumer Price Index (CPI), marginally exceeded the median estimate of 4.4% forecast by 18 economists in a , as the full impact of petrol and diesel price hikes and firmer food prices came into effect.
Food pressures
Food inflation, a key constituent of the CPI, stood at 5.52% in July, up from 5.32% in June, 4.78% in May and 4.20% in April.
Although inflation remains within the RBI’s tolerance range of 2% to 6%, a further rise in prices may push the central bank to increase policy rates, which could suppress growth in the coming quarters.
However, in August, the RBI’s Monetary Policy Committee (MPC) revised its inflation projection downwards to 5% from 5.1% earlier but cited risks arising from an expected below-normal monsoon amid , elevated and volatile energy prices and possible second-round effects from elevated input costs that could push up headline inflation in the coming months, with the peak reached during Q3 FY27.
“We see higher inflation potential in future given the state of monsoon and area under cultivation. While monsoon has recovered substantially in July, there has been news of crop damage due to excess rains,” said Madan Sabnavis, Chief Economist, Bank of Baroda. “This, combined with a longer cropping period and hence harvest, will push up prices of pulses in particular. Global prices of edible oils are also high, which is being felt in domestic markets.”
, diamond and platinum jewellery, as well as vegetables such as onion, ginger and garlic were among the items that had the strongest inflationary pressure. Potato, peas, tomato, lady finger and motor car and jeep remained the top items with low all-India inflation, the data showed.
“Core inflation, excluding food and fuel, is estimated near 4%, kept elevated by gold and silver prices amid geopolitical risk aversion and firm crude-linked transport costs,” said Rajeev Sharan, Head of Research, Brickwork Ratings. “For Q2 FY27, we expect headline inflation to average around 4.5-4.7%, with a mild uptick likely in September as base effects turn less favourable. Going forward, food will remain the key swing factor amid uneven monsoon and El Niño-related uncertainty.”
Inflation was the highest in the southern states of Andhra Pradesh, Telangana, Tamil Nadu and Karnataka as well as Madhya Pradesh, Odisha and Ladakh. It was the lowest in Delhi, Mizoram, Tripura, Meghalaya and Nagaland.
Oil risks
Personal care, social protection and miscellaneous goods and services as a group had the highest inflationary effect at 14.77% against 16.72% in June. Restaurant and accommodation services prices rose 7.72% in July against 6.91% in June.
have remained elevated this month, rising 7-8% to over $89 a barrel for Brent crude, driven by elevated tensions in West Asia and concerns over maritime shipments through the Strait of Hormuz. This has raised inflation for transport services to 4.43% in July against 4.31% in June. However, with the US and Iran looking towards a deal, oil prices may moderate in the coming days.
The conflict in West Asia has weighed on India’s economy, prompting a slump in the currency and raising stagflation risks. However, gross domestic product (GDP) growth in Q4 remained firm at 7.8%, taking the FY26 growth rate to 7.7%.
India’s growth is expected to moderate in the current fiscal. According to the RBI, is expected to remain steady at 6.7%, from 6.6% in June and 6.9% estimated in April. The World Bank shares this view, pegging India’s GDP growth at 6.6% this fiscal year. The Asian Development Bank, which projected India’s growth at 6.9% this fiscal year in April, has to 6.6% for FY27.
New CPI series
The latest CPI data can’t be compared with the year-ago period because the index was reset in January. Retail inflation was recorded at a revised 2.74% in January, marking the debut of the new series with 2024 as the base year. Prices rose by 3.21% in February, 3.4% in March, 3.48% in April, 3.93% in May and .
Inflation under the old CPI series, with 2012 as the base year, was 1.33% in December and 0.71% in November.
The new inflation index is built on spending patterns captured in the 2023-24 Household Consumption Expenditure Survey. The recalibrated weights for index components have pushed up India’s headline inflation readings modestly, with the share of core items rising about 10 percentage points and volatile food prices getting a smaller say.
The new series increases the share of housing, reshaping inflation measurement, easing volatility and altering how the RBI interprets headline inflation trends. Housing inflation stood at 2.22% last month against 2.10% in June, 2.12% in May, 2.15% in April, 2.11% in March and 2.11% in February.
Policymakers now have a more up-to-date basis for assessing real incomes, consumption trends and purchasing power.
The at its meeting on 5 August, striking a cautious tone as it monitored the impact of surging oil prices on the economy and pledges to curb excessive currency moves.
The central bank’s six-member MPC voted unanimously to keep the benchmark repo rate at 5.25% and retain a neutral policy stance, indicating that it is in a wait-and-watch mode, especially with regard to food and fuel price pressures.
“We project inflation to be 5.2% for the year with an upward bias and are working on one rate hike in the year. This also goes with the RBI inflation forecasts for Q3 and Q4 of this year and Q1 of next year being above 5% and averaging 5.5%,” Sabnavis said.