India's consumer price index rose 2.10 percent on the year in June, dropping sharply from an increase of 2.82 percent in May. This leaves headline inflation below the mid-point of the Reserve Bank of India's target range of two percent to six percent for the fifth consecutive month and extends the substantial disinflation seen since the peak of 6.21 percent last October.

The move lower in headline inflation was driven by food prices, which have continued to moderate after spiked higher earlier in the year. Food and beverage prices fell 0.20 percent on the year, weakening sharply from the 1.50 percent increase recorded previously, while fuel and light charges rose 2.55 percent on the year after a previous increase of 2.78 percent. Inflation in urban areas fell from 3.12 percent in May to 2.56 percent in June, while inflation in rural areas slowed from 2.59 percent to 1.72 percent.

At the RBI's most recent policy meeting, held last month, officials cut the benchmark repurchase rate by 50 basis points from 6.00 percent to 5.50 percent. RBI officials highlighted the recent decline in inflation and, as they did previously, expressed confidence that favourable weather conditions will further reduce food inflation pressures. Core inflation is expected to remain benign and officials have lowered their inflation forecasts for 2025 from 4.0 percent to 3.7 percent. Having cut rates aggressively in recent months, officials now consider that there is limited scope to provide further policy support for growth and announced that they would shift the policy stance from"accommodative" to"neutral". They also noted that they will seek to strike a balance between supporting growth and containing inflation in upcoming meetings.

Headline CPI expected lower at 2.40 percent on year in June versus 2.82 percent in May.

The Consumer Price Index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Within the overall CPI basket, food (47 percent) has easily the largest weight of any of the major components and a separate consumer foods price index is also released. Monthly and annual changes in the CPI provide widely used measures of inflation and the latter is the policy target of the Reserve Bank of India (RBI).

CPI numbers are widely used as a macroeconomic indicator of inflation, as a tool by governments and central banks for inflation targeting and for monitoring price stability, and as deflators in the national accounts. CPI is also used for indexing dearness allowance to employees for increase in prices. CPI is therefore considered as one of the most important economic indicators.

CPI numbers presently compiled and released at national level for India reflect the fluctuations in retail prices pertaining to specific segments of population in the country -- industrial workers, agricultural labourers and rural labourers. These indexes do not encompass all the segments of the population in the country and as such do not reflect true picture of the price behavior in the country. To overcome the above, the Central Statistics Office (CSO) of the Ministry of Statistics and Programme Implementation has started compiling new series of CPI for the entire urban population or CPI (Urban) and CPI for the entire rural population or CPI (Rural), which reflect the changes in the price levels of various goods and services consumed by the urban and rural population.