Consumer price inflation could potentially drop below 3.0% by December 2025, according to Acuité Ratings' predictions.
India's headline Consumer Price Inflation (CPI) has shown a significant decline, falling to 1.55% in July 2025, the lowest since June 2017[1][3][4]. This follows a 0.9% increase from June to July 2025, indicating a downward trend in inflation rates[2][5].
The Reserve Bank of India (RBI) has projected India's CPI inflation to remain below 3.0% until December 2025, primarily due to favourable base effects and a decline in food prices[1][3][4]. The Consumer Food Price Index (CFPI) showed a deflationary reading of -1.76% in July 2025, with steep price corrections in high-weight items such as vegetables, pulses, and spices contributing to the decline[3][4].
Favourable base effects are significant, as comparisons are made to periods of relatively higher inflation last year, thereby reducing the year-on-year inflation rate[3][4]. Additionally, reduced inflation has been observed in categories such as transport and communication, education, eggs, and others[3][4].
However, the RBI expects CPI inflation to rise above 4.0% by Q4:2025-26 and beyond, due to unfavourable base effects and demand-side factors from policy actions[3][4]. Econometric models predict inflation will hover around or slightly below 3.0% through the end of 2025, with a projection of a moderate increase beyond that into 2026 and 2027 (around 3.8-4.0%) as per longer-term forecasts[1][5].
Sankar Chakraborti, Managing Director and CEO of Acuité Ratings and Research Limited, stated that India's FY26 inflation target has been lowered to 3.0% from 3.5%, on the assumption of normal monsoons[6]. He also forecast a moderate increase in core inflation to 4.0-4.6% for FY26[6].
Coconut oil, gold, and silver recorded steep price increases of +131.8%, +36%, and +21.9% respectively, due to global commodity market pressures and financial trends[3][4]. Despite these increases, the overall impact on the CPI has been minimal, as these items have a lower weight in the CPI basket.
In summary, India is experiencing a period of unusually low CPI inflation through 2025, primarily due to falling food prices and favourable statistical base effects, which are expected to keep inflation subdued until at least year-end 2025[1][3][4]. However, a moderate increase is expected in the coming years.
[1] The Economic Times, "RBI lowers inflation projection for FY26 to 3%", 2025. [2] Livemint, "India's retail inflation slows to 1.55% in July", 2025. [3] Business Standard, "RBI lowers retail inflation forecast for FY26 to 3%", 2025. [4] Financial Express, "RBI lowers retail inflation forecast for FY26 to 3%", 2025. [5] BloombergQuint, "India's CPI Inflation Projections for FY26", 2025. [6] Moneycontrol, "India's FY26 inflation target lowered to 3%: Sankar Chakraborti", 2025.
The Reserve Bank of India's (RBI) projected decline in CPI inflation, remaining below 3.0% until the end of 2025, indicates a positive outlook for businesses that rely on stable financial conditions [1][3][4]. The lower inflation rate could potentially lead to reduced borrowing costs and increased consumer spending, thus enhancing the overall business environment [6].
Although some individual items such as coconut oil, gold, and silver showed steep price increases due to global commodity market pressures and financial trends, the overall impact on the CPI has been minimal [3][4]. This suggests that businesses that focus on these specific sectors may experience price volatility, but the broader business environment remains favorable [6].
