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Inflation: 8 Year low at 1.55%. RBI expectation of 3.1% inflation for FY25 likely to achieved

ICICIdirect Research 14 Aug 2025 DISCLAIMER

CPI inflation came down further to 1.55% (lowest since June 2017) as compared to 2.10% in June and as against market expectation of around 1.40%. In last 7 months, CPI print has consistently come down every month from 6.2% in October 2024 to current level of 1.5%.

The decline was led by Vegetables (-21%), Pulses (-14%) and Cereals (3%) while Oil & fats and Fruits were the only two major item with 19% and 14% inflation due to unfavourable base and MoM rise (2%-3% rise MoM).

Core inflation was down at 4.1% as compared to 4.4% in June largely due to base effect in Transport and Communication. (Core inflation declined after 5 months of continuous rise from 3.59% in Dec 2024 to 4.4% in June 2025)

Gold approximately contributes around 60bps to inflation print (15% inflation).

While FY26 inflation average projection by RBI is at 3.1%, Q4FY26 and Q1FY26 inflation projection is at 4.4% and 4.9% largely due to base effect. This is a major worry preventing further rate cuts. However, this rise next year is largely due to the base effect in food inflation and Core inflation is likely to remain around 4% in H1CY27. New series from January 2026 likely to reduce weight of food and beverages by around 5% from current 45.9%.

RBI maintained GDP growth at 6.5% in last MPC meeting while market expectation is at 6.3% with downside risk of tariff related export growth impact. Therefore, a rate-cut may happen if focus on growth takes precedence.

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