Opinion A good monsoon will help sustain declining inflation

Price pressures in the Indian economy have receded further. On Monday, data released by the National Statistics Office showed that retail inflation, as measured by the consumer price index, had edged lower to 2.1 per cent in June, down from 2.82 per cent the month before. This is the fifth straight month that inflation has stayed lower than the RBI’s target of 4 per cent. Taking this data into account, inflation has now averaged 2.7 per cent in the quarter, lower than the central bank’s expectation of 2.9 per cent.

Much of the decline can be traced to the moderation in food prices, with the food and beverages segment witnessing a deflation of 0.2 per cent. Steep declines were also observed in vegetables and pulses. The outlook for food prices is also promising. During the southwest monsoon season, cumulative all-India rainfall has been 9.5 per cent above the long-period average as on July 14. The deficit in the first half of June has been covered. So far, the area sown under all kharif crops has been higher than last year. This will sustain the current disinflationary trend in food prices. Alongside, concerns over a surge in oil prices have receded, with oil prices moderating from levels seen during the Israel-Iran conflict. Brent crude oil is currently trading at around $68, down from $75 in June. According to analysts, core CPI, which excludes volatile food and fuel components, has edged upwards in June. But this rise was not broad-based. Price pressures remain muted in some non-food categories such as clothing and footwear, household goods and services, housing, recreation and amusement. However, in the personal care and effects and miscellaneous segments, inflation was high.

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The latest data only affirms the decision of the Monetary Policy Committee to frontload the interest rate cuts in its last meeting in June by lowering the policy rate by 50 basis points to 5.5 per cent. But alongside, in this meeting, the committee had said that after reducing interest rates by 100 basis points since February 2025, “policy is left with very limited space to support growth”. The current trends in prices, however, raise the possibility of the RBI lowering its inflation projections for the year from 3.7 per cent currently. The committee is likely to opt for a pause when it meets next in August. Further policy action will depend on whether growth and inflation move in line with expectations.