Retail inflation hits 8-year low of 1.55 per cent in July

Retail inflation in the country dipped to an eight-year low of 1.55 per cent in July. The dip occurred mainly due to the decreasing prices of food items, including vegetables and cereals, according to government data released on Tuesday (August 12). This has been the lowest since June 2017, when retail inflation was at 1.46 per cent.

"The significant decline in headline inflation and food inflation during the month of July 2025 is mainly attributed to favourable base effect and to decline in inflation of pulses and products, transport and communication, vegetables, cereal and products, education, egg and sugar and confectionery," the National Statistics Office (NSO) said as quoted by PTI. The year-on-year food inflation rate in July was (-) 1.76 per cent.

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‘Below RBI’s tolerance band’

According to a Reuters report, the latest dip in retail inflation is below the Reserve Bank of India’s (RBI) tolerance band of 2 per cent to 6 per cent. The report further states that the RBI is mandated not to let inflation fall below or above the range for more than three quarters.

"These inflation numbers are on expected lines," said Madan Sabnavis, an economist at Bank of Baroda, according to the report. He also said that the impact on the RBI's policy decision will be muted.

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The tariff effect

Earlier this month RBI lowered its inflation forecast for the current financial year from 3.7 per cent to 3.1 per cent. It has also not made any significant changes to key interest rates, stating that the domestic economy’s growth prospects were strong.

However, RBI’s forecast was made before US President Donald Trump slapped a 25 per cent punitive tariff on Indian goods for New Delhi’s purchase of Russian crude oil, in addition to the earlier 25 per cent reciprocal tariff, bringing the total tariff rate to 50 per cent.

The Reuters report stated that, according to the Centre’s estimate, about 55 per cent of India’s merchandise exports to the US would come under the purview of the tariffs.

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Another rate cut expected

Some economists are expecting that the low inflation and growth impacts from tariffs will pave the way for another rate cut.

"The RBI's already-lowered 12-month forecast may be undershot, raising the likelihood of further rate cuts, particularly as U.S. tariffs could shave 30–40 bps off GDP growth," said Sujan Hajra, chief economist at Anand Rathi Group in Mumbai, as quoted by Reuters.

(With agency inputs)