India's annual retail inflation dropped to 2.10% in June, its lowest level in over six years, approaching the bottom end of the central bank's target range, as food prices kept falling. This adds to the argument for potential further interest rate cuts.
The figure came in below the 2.5% forecast by economists in a Reuters poll, and down from 2.82% recorded in May.
Food prices have played a key role in driving inflation down this year, helped by sufficient rainfall that boosted agricultural production.
Food inflation, which makes up nearly half of the retail inflation index, declined by 1.06% in June, reversing a 0.99% increase seen in May. Vegetable prices, in particular, dropped 19% year-on-year, deepening from a 13.7% decline in the previous month.
“CPI inflation edged further down in June on the back of lower food prices,” stated Sakshi Gupta, an economist at HDFC Bank.
Both headline and food inflation in June reached their lowest levels since January 2019, according to the government's statistical department.
The Reserve Bank of India (RBI) is required to keep inflation within the 2% to 6% range and must not allow it to stay outside this band for three consecutive quarters.
Cereal prices rose 3.73% year-on-year in June, down from a 4.77% increase in May, while pulse prices fell by 11.76%, deepening from an 8.22% decline the previous month, Reuters reports.
The continued easing of inflation has given the RBI more flexibility to prioritise economic growth. In June, the central bank delivered a larger-than-expected 50 basis point cut to its repo rate.
It also revised its retail inflation forecast for fiscal year 2026 down to 3.7% from an earlier estimate of 4%, citing a strong harvest and the early onset of monsoon rains.
“Given this print and ongoing momentum in food inflation, the annual average inflation for FY26 is likely to be lower than 3.7%,” Gupta added.
Furthermore, RBI governor Sanjay Malhotra stated in an interview with a national daily that if inflation falls below the central bank’s current projection, it could create room for policy adjustments. He underscored that the RBI will aim to maintain a balanced approach between supporting growth and keeping inflation in check.
“While comfortable inflation opens room for further monetary easing, we expect the RBI to maintain a pause in the coming one-two meetings and remain watchful of the transmission ahead along with global uncertainties,” stated Upasna Bhardwaj, economist at Kotak Mahidra Bank.
Core inflation, which excludes volatile components like food and energy and serves as a gauge of underlying domestic demand, rose to around 4.4%–4.5% in June, up from 4.17%–4.20% in May, according to estimates by three economists.