India’s CPI inflation decelerated further to a near 6-1/2 year low of 2.10%YoY in Jun-25 compared to 2.82% in May-25. Although market participants had expected headline inflation to moderate further (to 2.5%, as per Refinitiv consensus), the actual print surprised on the downside yet again. Jun-25 marked the fifth consecutive reading below RBI’s 4.0% target.

Key highlights of Jun-25 data

• On sequential basis, CPI posted an increase of 0.62%MoM, lower than average increase of 0.92% usually associated with the month of June. Nevertheless, this marked the strongest sequential increase in the headline index since Nov-24.
• Annualized food inflation eased further to a 77-month low of -0.20%YoY in Jun-25 from 1.50% in May-25. 
  1. The downside was led by Cereals (-0.3%MoM) and Pulses (-1.43%MoM) predominantly, along with spices (-0.09%MoM).
  2. Limiting the downside was a price build-up seen in Vegetables (7.18%MoM), Eggs (4.0%MoM), Edible oils (0.75%MoM) and Meat & fish (0.83%MoM).
• Consolidated fuel inflation moderated to 2.1% YoY from 2.3% in May-25. This was aided by a sequential deceleration in prices of subsidised Kerosene (-1.73%MoM), Firewood & chips (-0.38%MoM), Charcoal (-1.21%MoM), and Dung cake (-0.11%).
• Core CPI inflation (captured by CPI excluding indices of Food & Beverages, Fuel & Light, and petrol and diesel items within the Miscellaneous basket) rose further to a near 2-year high of 4.6%YoY in Jun-25 vs. 4.4% YoY in May-25. Most sub-components within core displayed moderate inflation, with the exception for Personal care and effects. Inflation for Personal care and effects has averaged at 13.17% in this CY25, compared to 8.09% in CY24, reflecting the firming of gold price (along with the lagged impact of weaker Rupee).

WPI inflation

• WPI too softened to slip into a contraction of -0.13%YoY in Jun-25 from 0.39% in May-25. Jun-25 marked the weakest WPI print in 20 months. 
  1. Like CPI, while food prices did see a positive momentum, food inflation remained benign owing to a highly favourable base at play. 

Inference and Outlook

The annualized headline inflation has continued its slide lower, marking the eighth back-to-back downward surprise in Jun-25. With this, Q1 FY26 CPI inflation averages at 2.7% i.e., 20 bps below RBI’s estimate of 2.9%. 

The downside has been premised on a strong pace of food disinflation seen since Nov-24 – continuing well into Q1 FY26. Against the backdrop of strong Kharif and Rabi outputs from last agriculture season (i.e., Jun-24 to May-25), the outlook on food continues to remain comforting amidst –

• Strong performance of Southwest monsoon so far, recording a surplus of 9% over LPA on a cumulative basis, as of 14th Jul-25. IMD expects full season (Jun-Sep) to end with a 6% surplus rainfall. 
• Area sown under Kharif crops has already recorded an increase of 6.6%YoY, as of 11th Jul-25, with only 55% of the season’s sowing complete. At a granular level, rice sowing is up 10.6% while pulses is up by 25.7%, on annualised basis. 
• Disinflationary impact of the 2025-26 Kharif MSPs is estimated at ~10 bps.
• Price of vegetables have begun to rise in Jul-25 along with intensity of rainfall picking up, as per high frequency daily mandi prices. In particular, tomato prices have hardened considerably in last 2-1/2 months, along with other vegetables such as Cabbage, Brinjal etc. Having said, on annualized basis, vegetables inflation continues to remain benign (-19.0% as of Jun-25), thanks to a highly favourable base effect. 

Looking ahead, two opposing price pressures are likely to play out in the coming months-

• Food inflation would continue to provide a strong disinflationary impulse to the headline inflation. CPI inflation could ease below 2.0% in Jul-25 and possibly yet again in Q3 FY26 briefly. 
• Core inflation is expected to see a moderate upside on account of recovery in domestic consumption, possible tariff related impacts and price of precious metals remaining firm amidst heightened global uncertainty. 

However, on a net basis, the disinflationary impact from food prices is likely to exert an outsized impact (owing to its weight in the CPI index) in the near term. As such, we revise our FY26 average CPI inflation forecast to 3.0% from 3.5% earlier. This revised CPI estimate stands much lower than RBI’s Jun-25 projection for FY26 CPI inflation of 3.7%. This downward resetting of full year inflation estimate, in our opinion, provides RBI a window to deliver another 25 bps reduction in repo rate soon – i.e., either Aug-25 or Oct-25 policy. This will align with RBI’s data dependency stance for further rate action, while providing support to growth (ahead of the festive season) by fast tracking monetary policy transmission. 

Table 1: Overview of key sub-components of inflation

Note:

1) CPI-Consolidated Fuel index includes Fuel & Light and Petrol & Diesel indices from the Miscellaneous basket.

2) CPI-Core excludes Food & Beverages and Consolidated Fuel indices from Headline CPI.

3) Readings under the memo items are derived from imputed indices. Figures have been rounded off.  

Chart 1: Sequentially, momentum in inflation has undershot its seasonal trend, to allow for headline to continue to move lower

Chart 2: Southwest monsoon has progressed well in the season so far, recording a 10% surplus above LPA as of 14^th Jul-25