Inflation drops across the board as retail hits 5-year low, wholesale turns negative

By: Shantanu Bhattacharji

If growth remains stable, the RBI is likely to keep rates steady, having already front-loaded its tightening. With the Fed still undecided, it will likely adopt a wait-and-watch stance while closely monitoring supply-side risks.

The Consumer Price Index-based inflation took a dramatic turn in June, with retail prices rising at their slowest pace in over five years. Consumer price inflation dropped to 2.1 per cent from 2.82 per cent in May—marking the lowest print since January 2019—thanks to a rare fall in food and beverage prices and a favourable base effect. 

Wholesale prices also slid into negative territory for the first time in nearly two years. The Wholesale Price Index (WPI) fell to -0.13 per cent from 0.39 per cent in May. The last time India saw WPI deflation was in October 2023. 

The data, released by the National Statistics Office and the Commerce Ministry, suggests a broad-based cooling in price pressures. Notably, vegetable prices fell by 19 per cent year-on-year—the sharpest drop since December 2022—while pulses declined by 11.8 per cent, their biggest fall in more than seven years. Even typically sticky components like spices and meat saw price cuts. 

Cereals and sugar saw moderate inflation, while edible oils and fruits remained outliers, still posting double-digit price gains. But for the broader inflation basket, the trend is clear: disinflation is taking hold. 

What This Means for RBI 

The Reserve Bank of India (RBI) has held its policy repo rate at 6.5 per cent since February 2023, opting for caution amid global volatility and uncertain food prices. June’s data may give the Monetary Policy Committee (MPC) room to breathe, but it’s unlikely to prompt a rate cut anytime soon. 

Retail inflation is near the bottom of the RBI’s 2–6 per cent target range. But core inflation—a measure that excludes food and fuel—ticked up to 4.4 per cent, it is highest since September 2023. Much of that was driven by a 36 per cent surge in gold prices amid geopolitical tensions, which pushed up jewellery costs and skewed the headline. 

Services inflation also rose to 4.1 per cent, a 22-month high, underscoring continued strength in sectors like health, education, and transport. Still, over two-thirds of the items in the core basket remain under 4 per cent, pointing to a broader disinflationary pattern. 

Monsoon and Food Price Risks Remain 

The outlook for food inflation is improving, thanks to good monsoon progress and strong kharif sowing. But risks haven’t gone away. Rainfall distribution—both over time and geography—remains a key variable. Uneven rains could still disrupt crop yields and nudge food prices back up. 

Economists say that unless growth falters sharply, the RBI is unlikely to move rates in the near term. The central bank has already front-loaded its tightening, and with the US Federal Reserve still weighing its own moves, the RBI will likely opt for status quo while keeping a close eye on supply-side risks. 

The Bigger Picture 

June’s low inflation is a good sign—but it doesn’t mean interest rates will be cut soon. The RBI is likely to wait and watch to see if food prices stay low or bounce back. 

For now, prices are easing—but how long that lasts will depend on the weather.