Food-led disinflation pushes CPI to 1.55% in July, but core pressures and household data reveal a more complex reality.
The big picture
India’s retail inflation cooled sharply to 1.55% in July, the lowest reading in eight years, according to the Ministry of Statistics & Programme Implementation’s (MoSPI) Consumer Price Index (CPI) release for July 2025. The fall was led by a rare stretch of food price deflation — the Consumer Food Price Index (CFPI) registered –1.76% — even as several essential services remained firm. Rural inflation moderated to 1.72%, urban to 1.18%, pulling the combined measure to the new cycle low.
On paper, this is an inflection point. In practice, households are asking a fair question: if inflation is at an eight-year low, why do monthly budgets still feel tight? The answer lies in what is falling (volatile, high-weight food) and what is not (stickier, lower-weight essentials like health, education, housing and services). This explainer unpacks the headline number using MoSPI’s latest release, breaks down rural–urban dynamics, tracks historical context, and outlines what to watch next for policy and pocketbooks.
What the latest CPI release shows
MoSPI’s July CPI bulletin (base: 2012 = 100) reports a broad-based easing led by food, while non-food categories are cooler than a year ago but still sticky in places. Key highlights extracted from the press release:
Large declines within food led by vegetables (about –20.7%), pulses (about –13.8%), spices (about –3.1%) compared with last year’s elevated levels.
Core inflation (CPI excluding food & fuel) remains near ~4%, with education (~4.0%) and health (~4.6%) still elevated; transport & communication eased compared to last year’s highs.
Table 1 — CPI at a glance (YoY, %) Source: MoSPI, CPI Press Release — July 2025 (Combined; Rural/Urban splits as reported)
Indicator
Combined
Rural
Urban
Headline CPI
1.55
1.72
1.18
CFPI (Food)
–1.76
–1.74
–1.90
Note: This table reproduces the headline rates presented in the press release for July 2025.
Why the plunge? The role of base effects and food weights
Two mechanics matter here:
High base last year: July 2024 saw unusually high food inflation after erratic weather and supply shocks. Comparing July 2025 to that elevated base mechanically pushes the year-on-year rate down (the “base effect”).
Basket weights: The CPI basket is anchored to 2011–12 consumption patterns, which give food a heavy weight (near half the basket for the combined index, and even more for rural). When food prices fall sharply, the headline CPI can drop even if other categories haven’t eased as much.
This is why households — especially urban ones with bigger outlays on education, health, rent, commuting and digital services — may not perceive the same relief: those categories have lower weights in the CPI but loom larger in real budgets.
Rural vs Urban: different baskets, different realities
Rural inflation usually tracks food more tightly; urban inflation is more sensitive to services. July’s split (Rural 1.72%, Urban 1.18%) tells a subtle story:
Rural: Food deflation (–1.74%) offset pressures from fuel and certain services, lowering the overall rate but leaving essentials like health care still expensive relative to pre-pandemic norms.
Urban: Food deflation was even deeper (–1.90%), but categories like education, housing, personal care and health keep budgets taut. The lower headline thus coexists with non-trivial monthly outgo on school fees, medical visits, rents and telecom.
Table 2 — Food vs non-food: rural and urban (YoY, %) Source: MoSPI, CPI Press Release — July 2025
Segment
Food (CFPI)
Non-Food (indicative)
Rural
–1.74
Higher relative to food; health & education firm
Urban
–1.90
Housing, education and personal care remain sticky
Interpretive summary using the press release’s category notes; specific sub-group prints vary by state and may be seen in annexures.
What’s falling — and what isn’t
Falling hard (YoY):
Vegetables: seasonal supply and base effects combined to produce a steep decline (around –20.7%).
Pulses: easing after last year’s surge (around –13.8%).
Spices: correcting from previous highs (around –3.1%).
Moderating but sticky:
Cereals & products: relief versus 2024 highs, but levels remain above pre-2022 norms.
Milk & milk products: structurally slower to adjust; still a meaningful share of household spend.
Oils & fats: off their commodity-shock peaks but not uniformly cheaper across brands/regions.
Still firm (core components):
Education: ~4.0%
Health: ~4.6%
Transport & communication: easing from last year’s telecom tariff base, but not uniformly cheaper in absolute bills.
(Category pointers reflect the current press release’s direction of travel and accompanying commentary.)
Timeline: how we got here
The deceleration has been several months in the making, with food leading the way. A compact timeline helps place July’s print in context.
Exact monthly figures are available in MoSPI’s monthly annexures. July readings are from the latest press release.
Historical perspective: lowest since 2017 — what that does (and doesn’t) mean
An eight-year low in headline inflation is a headline writer’s dream — and a policymaker’s comfort. But low year-on-year inflation does not mean prices are cheap; it means prices are rising more slowly (or, for food, falling versus a high base). The price level remains high after the step-ups of 2022–2024. Households, therefore, feel:
Some relief at market stalls (vegetables, certain pulses).
Limited relief in medical bills, tuition, rent, personal care, transport.
A lag between wholesale disinflation and retail pass-through for packaged items.
Persistent pressure from EMIs, fees and service charges that rarely reverse.
Inside the basket: how CPI weights shape the story
CPI India is built from 2011–12 consumption data. That world gave food a dominant weight (particularly in rural areas). Since then, household spends (especially urban) have shifted toward:
Digital services (data plans, subscriptions, devices).
These categories carry smaller weights in CPI than their lived share in many urban budgets. So when food falls, the index dives, but the monthly payment reality (fees, EMIs, bills) doesn’t budge as much. This is the “disinflation disconnect”: the national index cools faster than the household feels it.
Core inflation: the signal beneath the noise
Economists track core CPI to strip out food and fuel volatility. In July, core hovered near ~4% (with refined measures closer to ~3–3¼% depending on treatment of energy and gold). The composition matters:
Education (~4.0%) and health (~4.6%) remained solid.
Transport & communication decelerated from last year’s telecom base, but fares and fuel-linked costs still matter for commuters.
Personal care and household goods/services show uneven disinflation — branded products frequently lag input cost relief.
Core near 4% is consistent with a durable cooling trend, but not yet the kind of softness that materially lowers non-food bills month to month.
What households can expect over the next couple of quarters
Short-term (next 1–3 months):
Food: Prices could firm seasonally for some perishables; overall trend remains benign if monsoons normalise and supply chains hold.
Packaged goods: Some pass-through of lower input costs may continue, but brand pricing is sticky.
Services: Education and health typically re-set annually and rarely fall; expect persistence.
Medium-term (3–6 months):
Base effects fade: As we move beyond last year’s high base months, headline CPI may drift closer to 3% (all else equal), still low by recent standards but higher than July’s trough.
Real wages: If nominal pay hikes (~9–10%) hold while inflation remains ~3–4%, real pay improves, supporting consumption — but EMI and fee burdens still constrain discretionary spending.
Policy: A durable undershoot offers room for a measured pivot by the monetary authority if growth conditions allow, but policy will remain data-dependent.
State-level and category diversity (why your city’s experience varies)
The national average conceals dispersion. States with better vegetable inflows see sharper food disinflation; states with higher private schooling penetration or healthcare costs feel stickier core. Urban centres with tight rental markets and higher service penetration feel less relief than the headline implies. The annexures in MoSPI’s release provide state-wise indices and group/sub-group changes that newsrooms and corporates should consult for local planning and pricing.
Method note: reading the CPI correctly
CPI vs CFPI: Headline CPI (total basket) vs CFPI (only food). July’s divergence — total near +1.55%, food at –1.76% — tells you food is doing the heavy lifting.
YoY vs MoM: Year-on-year rates can plunge on a high base even if month-on-month prices are flat to slightly up.
Index vs inflation rate: An index near 196 (illustrative combined level) means prices are about 96% higher than in the 2012 base year; a 1.55% inflation rate means they’re 1.55% higher than the same month last year.
Data tables
Table 4 — CPI headline and food (YoY, %, combined) Source: MoSPI, CPI Press Release — July 2025
Indicator
Jun 2025
Jul 2025
Direction
CPI (Combined)
~2.10
1.55
↓
CFPI (Combined)
–1.01
–1.76
↓
Table 5 — Rural vs urban split (YoY, %) Source: MoSPI, CPI Press Release — July 2025
Exact state/category numbers are detailed in the MoSPI annexures
What this means for policy, markets and households
Policy: A sub-2% print validates the disinflation path, giving policymakers latitude — but not a free hand. With core around ~4% and output considerations in play, a gradualist stance remains prudent. The forward path will hinge on monsoon performance, global commodity prices, and services inflation.
Markets: Bond markets tend to lean dovish on sustained disinflation, but positioning already embeds moderation. Equities keyed to discretionary consumption may welcome better real incomes, whereas defensive staples could face pricing discipline from retailers and consumers.
Households: Expect continued relief at the mandi and kirana on select staples. But fees, rents, medical bills, and EMIs won’t deflate in tandem. The advisable response for families is tactical: lock in deals on packaged goods, review telecom and subscription plans, and refinance where EMIs allow.
Data literacy corner
Why your bill is still high when inflation is low: Inflation is the rate of change. If your basket went from ₹100 to ₹110 last year (+10%) and to ₹111.55 this year (+1.55%), the level is still ₹111.55 — not back to ₹100.
Food weights amplify swings: Food has a big share of CPI; steep vegetable/pulse corrections can overwhelm stickiness elsewhere — statistically.
Core vs headline: Core is slower to fall; it reflects services and semi-durables you can’t easily substitute.
The July CPI print is a genuine milestone: India now sits among a small group of large economies posting sub-2% headline inflation. But it’s a food-heavy story. The lived experience of inflation — school fees, clinic visits, rent, commutes — is governed by the core which is decelerating but still sticky. If supply conditions hold and services follow food lower, households will feel broader relief. Until then, the paradox stands: headline calm, household strain.
Source: MoSPI,Consumer Price Index (CPI) — July 2025 press release (Combined and Rural/Urban series; CFPI; group/category directions and annexures). If you’d like, I can extract the state-wise and group-wise tables from the PDF into CSVs and generate ready-to-embed charts for your CMS.
