India's food deflation likely predicts further easing in the CPI – and by the RBI

Indian food prices are getting cheaper by the day. That's important for the overall inflation rate -- and the likelihood of more interest-rate cuts.

CEIC offers a high-frequency Food Price Index for India. This daily, proprietary indicator tracks a weighted average of prices for goods ranging from tomatoes to milk; it tipped into deflation in late April, and has fallen further ever since.

As the chart shows, our measure tracks the food segment of the official consumer price index quite closely; indeed, food CPI was negative in the most recently released figures (for June).

Food and beverages account for almost half of India's consumer price index (45%). Our second chart shows the outsized effects that result: India's inflation fell to 2.1% in June, the slowest pace in over 5 years. It is worth noting that there has also been a moderation in the fuel component, though this sector's impact on the headline figure is more muted.

With regards to food, part of the deflationary phenomenon is attributable to base effects after the unusually high food prices caused by bad weather in 2024. (We explore this base effect in our third chart.) However, food prices have only risen gradually since May of this year -- likely reflecting improved food supply.

As of mid-July, our proprietary index is showing food prices falling more than 3% year-on-year. Official July CPI figures won't be published by the government until August 12.

If July inflation falls below the Reserve Bank of India's tolerance band (2%-6%), policymakers could take further action next month. The RBI had already cut its key rate by half a percentage point in early June.