Retail inflation at 6-yr low of 2.1% due to falling food prices

India’s retail inflation fell to a 77-month low of 2.1% in June on the back of low food inflation, and wholesale inflation to a 20-month low of -0.1% on the back of low food and fuel prices, providing a much-needed policy cushion to the Indian economy at a time of heightened global uncertainties, with the headline numbers likely to preserve and perhaps even enhance the scope for monetary policy support to economic growth.

- Roshan Kishore

Retail inflation fell for the eighth consecutive month in June according to data released by the National Statistical Office (NSO) on Monday. With an annual growth of just 2.1%, 20 basis points lower than what a Bloomberg poll of economists predicted, it has once again positively surprised the markets. One basis point is one hundredth of a percentage point. The latest inflation reading is the lowest since January 2019 when it was at 2%.

The ongoing fall in retail inflation, which has fallen from 6.2% in October 2024 to 2.1% in June, is primarily a result of a fall in food inflation. Food inflation was 10.9% in October 2024 and the June reading shows a contraction of 1.1%. Food prices account for 39% of the Consumer Price Index (CPI) basket.

Among food items, it is primarily vegetables which are driving the overall disinflation. Vegetable inflation has fallen from 42% in October 2024 to a deflation of 19% in June. June is the fifth consecutive month of deflation in vegetable prices.