Inflation hits 8-year low. Does your wallet agree?

India Today

3 days ago

India's retail inflation plunged to an eight-year low in July, clocking in at just 1.55%, a figure that, at first glance, feels like a windfall for households. But does it really translate into relief for your monthly budget?On paper, the headline number looks like an economic milestone. The sharp decline was driven by steep price corrections in high-weight food items such as vegetables (-20.7%), pulses (-13.8%), and spices (-3.1%), he points out. Tomatoes, onions, and potatoes alone saw prices collapse by over 34%. This also pushed the Consumer Food Price Index (CFPI) into deflationary territory at -1.76%, down from -1.01% in June.advertisement'We are forecasting headline CPI inflation below 3.0% until December 2025, with our FY26 inflation target lowered to 3.0% from 3.5%, assuming normal monsoons,' said Sankar Chakraborti, MD & CEO of Acuit Ratings & Research.
For policymakers, these numbers scream success. In a world where many economies are still struggling with inflation north of 3–4%, India's July inflation print makes it one of the most stable markets globally. For families, though, that figure is more fiction than fact as the cost of living refuses to play along.WHY YOUR WALLET STILL FEELS THE PINCHMuch of this dramatic drop owes to a technical quirk: the base effect. Prices are compared year-on-year, and July 2024 was a period of high food inflation. That inflated base makes this year's reading look exceptionally soft.As Radhika Rao, Executive Director and Senior Economist at DBS Bank, said: 'July headline inflation rose by the slowest pace in over eight years to 1.6% yoy vs 2.1% in June. The print was a touch firmer than expectations but well below the RBI's target range. Much of the softness was driven by food and base effects. On a sequential basis, however, vegetables saw a seasonal lift, while pulses and cereals decelerated.'This means the fall in inflation is not because most goods and services are getting significantly cheaper, but because food prices are much lower compared to last year.CORE INFLATION REMAINS STICKYWhile overall retail inflation has cooled, core inflation—that excludes food and fuel—remains stubborn, even after a slight dip. It may be noted that core inflation better reflects what households actually experience. In July, core inflation came in at 4.1%, a slight dip from 4.4%.'Core inflation eased to 4.1% YoY in July (vs. 4.4% YoY in the previous month). Excluding energy and gold, refined core inflation also eased to 3.1% YoY,' says Tanvee Gupta Jain, Chief India Economist at UBS Securities.The moderation came mainly from transport and communication costs due to last year's telecom tariff hike (a base effect), and a slight easing in education. But as Jain notes, personal care and healthcare costs inched up marginally.Sankar Chakraborti highlighted the same concern: 'Education (4.0%), health (4.6%), and transport & communication (2.1%) remain sticky, indicating ongoing core inflation pressures.'Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, also expressed the same concern. 'The soft July inflation print is largely led by food inflation, with vegetables, pulses and cereals helping the trend. While the food inflation remains in check, the core inflation (even after netting out the impact of higher gold prices) remains elevated, suggesting inherent underlying price pressures across non-food categories,' Bhardwaj said.advertisementIn other words, the categories households cannot avoid—health, education, housing—are still expensive and getting more so.WHY THE DISCONNECT?Here's where the disconnect deepens. The CPI basket is built on 2011–12 consumption patterns, when food dominated household budgets.Today, urban families spend much more on healthcare, education, housing, technology, and digital services—all categories with much higher inflation rates than food. But because these items carry less weight in the index, the headline CPI underplays the pain.So, when vegetable prices crash, inflation looks tamed, even if your monthly expenses on tuition, hospital bills, or EMIs keep rising.Compounding this is low real wage growth. Nominal salary hikes average about 9.5%, but after adjusting for inflation and taxes, real growth is closer to 4–7%.A big chunk of this is swallowed by EMIs and household debt, which has doubled over the past decade.Household savings have dropped to a record low of just 18% of GDP. Combine that with lifestyle inflation driven by pricier private schooling, advanced healthcare, and constant tech upgrades, and the relief from disinflation quickly evaporates.advertisementTherefore, the gap between official numbers and household reality remains wide. Even with inflation at an eight-year low, millions of housholds across India are still feeling the pinch. What India faces seems to be an inflation paradox: a historic low on paper, stubborn pressure on the ground.(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)- Ends