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Economic Times

India's retail inflation eases to 8-year low of 1.55% in July; experts see benign outlook ahead

India's retail inflation dropped to an over eight-year low of 1.55% in July, aided by a sharp cooling in food prices, according to government data released this week. ADVERTISEMENT This is the first time in more than six years that inflation has fallen below the Reserve Bank of India's (RBI) 2–6% tolerance band, and it marks the lowest year-on-year rate since June 2017. Food inflation, which accounts for nearly half of the Consumer Price Index (CPI) basket, contracted by 1.76% in July, deeper than the 1.06% contraction recorded in June. The decline was largely driven by falling prices of cereals and pulses, even as certain items such as vegetables, fruits, and edible oils saw price week, the RBI's Monetary Policy Committee (MPC) cautioned that inflation could rise in the last quarter of FY26 due to volatile food prices, particularly vegetables. The sharp easing in retail inflation to an eight-year low is likely to boost sentiment in the bond market, as it strengthens the case for the RBI to maintain an accommodative stance for longer. ADVERTISEMENT However, market participants are expected to remain cautious given the RBI's warning about possible inflation upticks in the last quarter of FY26. If price pressures resurface, especially in vegetables and other perishables, it could temper bond market gains and push yields higher again. Unlock 500+ Stock Recos on App For now, the benign inflation print provides a favourable backdrop for fixed income, with the medium-term trajectory hinging on how food price risks evolve, experts suggest. ADVERTISEMENT Akhil Mittal, Senior Fund Manager – Fixed Income, Tata Asset Management, said the July CPI print of 1.55% came in marginally above market expectations of 1.40% but was consistent with the RBI's projected trajectory. 'This was largely on account of low food inflation. We believe CPI will remain well-anchored going forward and might undershoot the RBI's trajectory,' he noted. ADVERTISEMENT Sreejith Balasubramanian, SVP & Economist – Fixed Income, Bandhan AMC, said the July CPI was in line with their forecast of 1.6%, reflecting rising food price momentum from vegetables, fruits, and vegetable oils, partially offset by negative price momentum in cereals and pulses. 'Core CPI moderated to 4.1% from 4.4% in June, as price momentum in education and personal care & effects moved lower,' he expects inflation to remain benign in the coming months, supported by healthy Kharif crop sowing, which bodes well for agricultural output and price stability. Overall, while food price volatility remains a risk, experts believe India's inflation trajectory will stay comfortably within the RBI's target range in the near term, offering policy space for sustained economic growth. ADVERTISEMENT (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times) (You can now subscribe to our ETMarkets WhatsApp channel)