India’s July 2025 CPI inflation fell to 1.55%, below estimates, mainly due to lower food prices, easing RBI pressure, boosting market sentiment, and potentially supporting stock gains through accommodative policy.
India’s inflation numbers announced today for July 2025 indicate a sharp drop, with the Consumer Price Index (CPI) inflation falling to 1.55% year-on-year, the lowest retail inflation since June 2017. This is considerably lower than the anticipated 1.76% that experts had forecast. The fall marks the ninth straight month of decreased inflation, reflecting a continued disinflationary trend in the Indian economy.
Food prices fall significantly
One of the prime reasons for the overall drop in inflation was the steep fall in food prices, which dropped by 1.76%, the biggest drop since January 2019. Important foodstuff like pulses, vegetables, cereals, eggs, sugar, and confectionery recorded sizeable price cuts. Secondly, inflation slowed down in transport and communication sectors, while housing inflation was comparatively stable. The supportive base effect along with generous autumn crop sowing and good food grain stocks contributed to this fall.
Push for more accomodative stance
The Reserve Bank of India (RBI) has viewed this inflation outlook favourably and recently kept policy interest rates steady at 5.5%. With this inflation figure coming in well below estimates and beneath the RBI’s broad tolerance band of 2% to 6%, the central bank may have room to adopt a more accommodative monetary policy to support ongoing economic growth. The RBI has already lowered its inflation projection for fiscal 2025-26 to the tune of about 3.1%, which indicates this better inflation setting.
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Implications on the stock market
The implications for the Indian stock market of this below-market inflation reading are positive on the whole. Lower inflation generally enhances market mood since it diminishes worries over the jump in input costs for businesses and the likelihood of steep RBI interest rate increases. Equity prices are more appealing in an environment of low inflation since the cost of capital falls, raising profitability potential.
But market response may be subtle. While value stocks related to commodities may gain in an inflation scenario, growth stocks dependent on consumer demand may do well under low inflation as consumers have better purchasing power. With inflation cooling sharply, consumer-facing industries may witness greater investor optimism.
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Favourable for rate cuts
Indian equity benchmarks fell marginally on the day of the inflation data release, both on account of weakness in the financial sector and global market forces. However, overall, the softer inflation reading will be expected to assuage investor concerns and support a favorable medium-term perspective for equities. If the RBI takes this data as a reference point for future interest rate reductions, it may yet fuel equity market advances.
In short, India’s July inflation numbers present a picture of persistent easing pressures of inflation, with strong downward momentum in food prices propelling the headline rate to an eight-year low. This situation provides the RBI with more flexibility in monetary policy and creates favourable conditions for the stock market, which could be beneficial for consumer growth as well as value segments in the future.
