Retail inflation rises to 4.45% in July as food prices climb

Retail inflation edged up to 4.45 per cent in July, driven by higher prices of kitchen staples including onion and ginger, and remained above the Reserve Bank of India’s 4 per cent median target for the second consecutive month, government data showed. Inflation based on the Consumer Price Index (CPI) stood at 4.38 per cent in June. The July reading is the highest since the new CPI series, with 2024 as the base year, was introduced in January. Food inflation rose to 5.52 per cent in July from 5.32 per cent in the previous month, according to data released by the National Statistics Office (NSO).

Onion, ginger prices surge

Onion inflation jumped sharply to 22.54 per cent in July from 4.73 per cent in June. Ginger recorded an even steeper increase, with inflation surging to 83.62 per cent. Garlic prices also rose significantly during the month. However, prices of some vegetables provided relief, with inflation in potatoes, ladyfinger, peas and tomatoes remaining negative.

Earlier this month, RBI Governor Sanjay Malhotra said the recent increase in inflation was largely due to food and fuel prices, with few indications so far that price pressures were becoming broad-based. Core inflation, excluding precious metals, continued to remain benign. Malhotra said headline inflation was expected to rise further in the near term and peak in the third quarter of 2026-27, mainly because of food and fuel prices, before moderating thereafter.

The central bank has projected CPI inflation at 5 per cent for 2026-27, marginally lower than its June estimate. The government has mandated the RBI to keep retail inflation at 4 per cent, with a tolerance band of two percentage points on either side.

Rural inflation remains higher

The NSO data showed that rural consumers continued to face higher inflation than their urban counterparts.

Against the national average of 4.45 per cent in July, rural inflation stood at 4.84 per cent, while urban inflation was lower at 3.96 per cent.

Among states, Telangana recorded the highest inflation rate at 6.32 per cent, while Mizoram had the lowest at 1.84 per cent.

The NSO collects real-time price data from 1,407 urban markets, including online markets, and 1,465 villages across the country.

Economists see pressure ahead

Economists cautioned that the relative comfort on the inflation front could be short-lived as several factors are expected to put upward pressure on prices in the coming months.

Dipti Deshpande, Senior Director and Principal Economist at Crisil, said July provided some relief as food inflation increased at a slower pace and non-food inflation remained steady.

However, she said adverse base effects for food inflation, higher edible oil prices, the fading impact of GST rate cuts and the gradual pass-through of input costs, particularly transportation expenses, were likely to push inflation higher in the coming months.

Megha Arora, Director at India Ratings and Research, pointed to the impact of fuel costs on consumer-facing categories.

Transport prices rose 4.43 per cent in July, compared with 4.31 per cent in June and 1.75 per cent in May. Restaurant and accommodation services recorded inflation of 7.72 per cent, up from 6.91 per cent in June and 5.75 per cent in May.

Arora said the figures underlined the impact of the ongoing West Asia conflict on commercial liquefied petroleum gas prices.

She added that geopolitical tensions and the El Niño weather pattern continued to pose upside risks, although some improvement in weather-related pressures could be visible in the August inflation reading.

Crude oil price volatility is also expected to remain a concern, with oil likely to hover around $80-85 a barrel in the coming weeks.