CPI Inflation in July Rises Marginally to 4.5%, Above RBI Target
Inflation edges higher as food, restaurants and accommodation costs rise, while precious metal inflation moderates
India’s CPI inflation increased marginally to 4.5% in July from 4.4% in June, moving above the RBI’s 4% target. Inflation accelerated across eight of the twelve major divisions, although a sharp moderation in personal care and miscellaneous inflation partly offset the increase.
CPI Inflation Rises to 4.5% in July
Consumer Price Index (CPI) inflation rose to 4.5% in July from 4.4% in the previous month, according to data cited by CareEdge. The increase marks a marginal breach of the RBI’s 4% target.
Eight of the twelve major divisions recorded higher inflation during July. The overall increase was partly offset by a 1.9 percentage point decline in inflation in the personal care and miscellaneous category.
The moderation in personal care inflation was in line with expectations as gold prices recorded some moderation. Despite the decline, inflation in precious metal jewellery and watches remained elevated at 49% in July, although it was lower than the 57% recorded in June.
Food and Beverage Inflation Edges Higher
Food and beverages inflation increased marginally in July, reflecting seasonal pressures and the delayed onset of the monsoon. Inflation in the category rose to 5.2% in July from 5.1% in June.
Vegetable and fruit inflation moderated sharply to 3.3% in July from 6.1% in June. Inflation across most major vegetable crops also eased during the month. However, double-digit inflation in onion and garlic prices remains a point to monitor.
Inflation in pulses stood at 2.7%, while cereals remained relatively contained at 1.7% in July.
Edible oil inflation continued to remain elevated at 8.5%. Higher global prices remain a concern, with FAO global vegetable oil prices increasing 17% year-on-year in July. India’s import dependency on edible oil also remains a factor.
Food and beverage inflation is expected to average 6.4% in FY27.
Core Inflation Holds at 4.2%
Core inflation remained unchanged at 4.2% in July. When precious metals are excluded, core inflation stood at 3%.
The data indicates that much of the current price pressure remains supply-driven, providing some comfort to the RBI’s Monetary Policy Committee (MPC).
Division-Wise Inflation in July
Division | Weight (%) | Jun-26 | Jul-26 |
|---|---|---|---|
Food & Beverages | 36.8 | 5.1% | 5.2% |
Paan, Tobacco & Intoxicants | 3.0 | 4.8% | 4.8% |
Clothing & Footwear | 6.4 | 3.2% | 3.4% |
Housing, Water, Electricity, Gas & Other Fuels | 17.7 | 2.0% | 2.2% |
HH Furnishings, Equipment & Routine Maintenance | 4.5 | 2.2% | 2.4% |
Health | 6.1 | 1.4% | 1.3% |
Transport | 8.8 | 4.3% | 4.4% |
Information & Communication | 3.6 | 0.4% | 0.6% |
Recreation, Sport & Culture | 1.5 | 1.7% | 1.6% |
Education Services | 3.3 | 3.3% | 3.6% |
Restaurants & Accommodation Services | 3.3 | 6.9% | 7.7% |
Personal Care, Social Protection & Misc | 5.0 | 16.7% | 14.8% |
CPI | 100.0 | 4.4% | 4.5% |
Restaurants and Accommodation Inflation Remains Elevated
Inflation in restaurants and accommodation services increased to 7.7% in July from 6.9% in June. Businesses continued to pass higher input costs on to consumers, particularly increased food and energy costs, with the impact appearing with a lag.
Clothing and footwear inflation also increased, rising to 3.4% in July from 3.2% in June.
Housing, water, electricity, gas and other fuels recorded inflation of 2.2%, compared with 2.0% in June. Household furnishings, equipment and routine maintenance inflation increased to 2.4% from 2.2%.
Education services inflation rose to 3.6% from 3.3%, while transport inflation increased marginally to 4.4% from 4.3%.
Health inflation moderated to 1.3% from 1.4%. Recreation, sport and culture inflation also eased to 1.6% from 1.7%.
Inflation Outlook Faces Weather and External Risks
The inflation outlook remains exposed to external and weather-related risks. Uncertainty surrounding transit through the Strait of Hormuz continues to affect global energy prices.
Domestic rainfall also remains a key risk. Cumulative rainfall is 12% below the long-period average, with significant deficits across eastern, southern and northern India.
Sowing activity has improved despite the delayed start. As of last week, 87.6% of the normal area had been sown, compared with 89.9% during the corresponding period last year.
Concerns over agricultural yields remain. Sowing of cereals, pulses and sugarcane was lower than last year as of last week. While ample buffer stocks are expected to cushion cereal prices, lower sowing of pulses remains a concern.
Edible oil prices remain a key monitorable because of India’s large import dependence and elevated global edible oil prices. The eventual direction of food inflation will depend on the spatial and temporal distribution of rainfall over the coming months.
The government could undertake supply-side interventions to contain food inflation if required. Food inflation is expected to average 6.4% in FY27.
CPI Inflation Projected to Average 5.0% in FY27
CPI inflation is projected to peak in the third quarter of FY27 and average around 5.0% for the full fiscal year.
On monetary policy, the MPC is expected to remain data dependent while assessing evolving growth-inflation dynamics. Under the base case, no further rate hike by the RBI is expected in FY27. However, a rate hike later in the year cannot be ruled out if inflationary pressures remain persistent.