Retail Inflation Eases to a 6-Year Low of 2.1% in June
India's headline retail inflation dropped to 2.1% in June, its lowest level in over six years, according to data from the National Statistics Office (NSO). The significant decline from May's 2.82% is attributed to a favorable base effect and falling prices for key food items like vegetables, pulses, and milk. Wholesale price inflation also entered negative territory. The cooling inflation provides relief to consumers and may influence the Reserve Bank of India's upcoming monetary policy decisions.
Unpacked:
The 'base effect' refers to how inflation is measured against the same month in the previous year. If prices were already high last year, even small increases this year can appear as a low inflation rate. In June, last year's higher prices made this year's inflation rate look comparatively lower, helping push the headline figure down.
A sharp decline in inflation gives the RBI more flexibility to lower interest rates or maintain an accommodative stance, aiming to support economic growth. In June, the RBI already cut rates by 50 basis points, and continued low inflation could prompt further easing if growth becomes a concern.
While overall inflation dropped, core inflation (excluding food and fuel) rose to 4.4% in June, the highest since September 2023. Categories such as housing, education, health, and transport experienced steady or slightly higher inflation, indicating price pressures outside of food and fuel.
June's 2.1% inflation is the lowest in over six years and well below the RBI's target range midpoint of 4%. For FY25, inflation averaged about 4.6%, while projections for FY26 estimate a further decline to around 3.0–3.2%, lower than the RBI’s estimate of 3.7% and the long-term average.