India’s retail inflation for the month of July was posted at 4.45%, inching up from 4.38% reported in June. The rise in the inflation level was largely driven by the rise in food items, including ginger, garlic, and onion. 

Retail inflation level in rural areas stood at 4.84%, while in urban areas it was reported at 3.96%. 

The combined Consumer Food Price Index (CFPI), also known as food inflation, increased in July to 5.52% as compared to 5.32% reported in the previous month. Food inflation in rural areas stood at 5.79%, while for urban areas it was reported at 5.05% in July. 

With this, inflation has remained above the Reserve Bank of India’s 4% target for two consecutive months. 

Housing inflation for July was posted at 2.20%, up from 2.10% reported in June. In rural areas, the housing inflation level stood at 2.80%, while in urban areas it was pegged at 2.01% in July.

“Within vegetables, inflation has moderated across most categories in July; however, the double-digit inflation in onion prices warrants monitoring,” said Rajani Sinha, Chief Economist at CareEdge Ratings.

She added that the inflation outlook remains exposed to both external and weather-related risks. “Uncertainty around transit through the Strait of Hormuz continues to weigh on global energy prices. Domestically, below-normal rainfall remains a key risk.”

Outlook for FY27

According to the economist, food and beverage inflation is expected to average to 6.4% in FY27. “We project CPI inflation to peak in the third quarter of FY27 and average around 5.0% for the full fiscal year.”

According to Aditi Nayar, Chief Economist of ICRA, CPI inflation is likely to harden to 4.7% in August and cross the 5% mark in September, if the base case turns unfavourable. Nayar expects CPI inflation to average 5% in FY27, in line with the MPC’s forecast.