India’s retail inflation hits six-year low at 2.1% on falling food prices

India’s retail inflation cooled sharply to 2.10 per cent in June, marking its lowest level in over six years and slipping close to the bottom end of the Reserve Bank of India’s target band. The dramatic slowdown has been driven largely by easing food prices, offering the central bank more headroom to support growth through monetary easing. According to Reuters, June’s inflation prints surprised markets, coming in lower than the 2.5 per cent median estimate in a Reuters poll. It also marked a steep decline from 2.82 per cent in May.

Food prices lead the disinflation trend

Food prices, which make up nearly half of India’s consumer price index basket, saw a year-on-year decline of 1.06 per cent in June. This compared with a 0.99 per cent rise in May, signalling broad-based relief for consumers. Vegetable prices plunged 19 per cent year-on-year in June, extending May’s 13.7 per cent fall.

Sakshi Gupta, economist at HDFC Bank, told Reuters that, “CPI inflation edged further down in June on the back of lower food prices". The government’s statistical office confirmed that both headline and food inflation in June were the lowest since January 2019.

Easing inflation gives RBI room to focus on growth

The latest inflation data underscores the impact of favourable monsoon rains, which have boosted crop production and moderated food prices. The Reserve Bank of India (RBI) is mandated to keep inflation within a 2–6 per cent band for three consecutive quarters. With inflation now hovering at the bottom end of that range, economists say the central bank has room to continue cutting rates if needed. In June, the RBI surprised markets by cutting its repo rate by 50 basis points, a larger-than-expected move that signalled a shift toward supporting economic growth.

The central bank also lowered its fiscal 2026 retail inflation forecast to 3.7 per cent from 4 per cent, citing the early arrival of monsoon rains and strong harvest expectations. Sanjay Malhotra, RBI governor, told a national daily that if inflation undershoots the central bank’s projections, it could create further space for policy easing.

Economists see scope for more cuts, but caution remains

While the latest inflation data has boosted hopes for further monetary easing, some economists caution that the RBI will likely take a measured approach.

Upasna Bhardwaj, economist at Kotak Mahindra Bank, told Reuters that, “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.”

Core inflation, an important gauge of underlying demand that excludes volatile food and energy prices was estimated at 4.4–4.5 per cent in June, up from 4.17–4.20 per cent in May, according to economists quoted by Reuters. India’s official statistics agency does not publish core inflation figures, but analysts track them closely to assess the persistence of price pressures beyond food and fuel.

The bottom line

June’s inflation reading offers a rare piece of good news for India’s policymakers, signalling that the central bank has regained room to manoeuvre after a year of battling price pressures.

But with core inflation still elevated and global risks looming, the RBI is expected to tread carefully, balancing the need to support growth with its commitment to price stability.