India’s consumer price index (CPI)-based retail inflation eased to 1.55% in July, its lowest level since June 2017, down from 2.10% in June, according to data released on Tuesday. This figure was slightly above the estimated 1.30%.

Food inflation fell deeper into negative territory at -1.76% in July, compared to -1.06% in June, driven by sharp declines in key categories. Vegetable prices dropped further to -20.69% from -19% month-on-month, while pulses inflation eased to -13.76% from -11.76%.

In other categories, fuel and light inflation inched up to 2.67% from 2.55%, housing inflation eased to 3.17% from 3.24%, and clothing and footwear inflation moderated to 2.50% from 2.55%.

Rural inflation came in at 1.18% in July, down from 1.72% in June, while urban inflation eased to 2.05% from 2.56%. The July reading also marked the lowest food inflation since January 2019.

The sharp drop offers relief on the price stability front, though some categories still show volatility. According to Sujan Hajra, Chief Economist & Executive Director at Anand Rathi Group, the softer print could undershoot the RBI’s already-lowered 12-month forecast, potentially raising the chances of further rate cuts. He noted that US tariffs could shave 30-40 bps off GDP growth.

While lower rates would support equities and debt markets, subdued inflation may weigh on nominal GDP, earnings, tax revenues, and credit growth. However, Hajra added that easing prices alongside steady real growth remains broadly positive for India’s financial markets.

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