CPI inflation rises to 20-month high of 4.5% in July; food prices drive uptick
Food inflation accelerated to 5.5% in July, while onion and meat prices surged; Bank of Baroda expects CPI inflation at 5-5.2% in FY27.
The outlook for inflation is tilted to the upside largely due to elevated food prices. (AI Image)
India’s headline retail inflation inched up to 4.5% in July 2026 (BoB estimate: 4.5%), quickening from 4.4% in June 2026. Incidentally, CPI inflation has been trending upwards for the last 7 months and is now at a 20-month high. Sequentially, inflation in the food and restaurant and accommodation services category showed the maximum upward momentum.
Food inflation inched up to 5.5% in Jul’26 from 5.3% in Jun’26. Within food, there was a significant 22.5% jump in onion prices in Jul’26 (+4.7% in Jun’26), which can explain a part of the increase. Garlic and ginger prices too noted double-digit inflation rates. Within food, cereals prices increased by 1.7% in Jul’26 after increasing by 0.9% in Jun’26, according to a Bank of Baroda report.
On the other hand, tomato prices showed significant correction and declined by 4.6% in Jul’26 after increasing by 31.9% in Jun’26. Significant price pressure was also visible in meats category with prices increasing by 15.3% in Jul’26 after increasing by 9.7% in Jun’26. On the other hand, inflation in oil and fats and fruits and nuts category eased on a sequential basis.
Core inflation (ex. food and fuels) remained steady at 3.9% in Jul’26. Within core, the main driver has been the transportation component. A key segment which has continued to show an upward trend is transport inflation. In Jul’26, inflation in the transport category increased to 4.4% compared with 4.3% in Jun’26. At the same time, inflation in the restaurant and accommodation services category picked up to 7.7% in Jul’26, compared with 6.9% in Jun’26. Inflation in education services too inched up to 3.6% in Jul’26 from 3.3% in Jun’26. On the other hand, inflation in personal care and effects decelerated further to 14.8% in Jul’26 compared with 16.7% in Jun’26, largely reflecting the impact of lower global prices of gold and silver. Demand driven components of core such as household equipment & routine maintenance inched up to 2.4% in Jul’26 from 2.2% in Jun’26. Similarly, price pressures are also building up in the furnishings, HH equipment & routine HH maintenance category.
Housing, Water, Electricity, Gas & Other Fuels rose to 2.2% in Jul’26 from 2.0% in May’26, even as LPG prices were steady in Jul’26.
Way Forward
With the July 2026 print, CPI inflation has now stayed above RBI’s 4% target for 2 consecutive months. The outlook for inflation is tilted to the upside largely due to elevated food prices. Rainfall under the South-West monsoon currently stands at 11% below LPA. Kharif acreage too has been lower, specifically for crucial crops such as rice and pulses. Already, some upward pressure on prices is visible. At the same time, it will also be crucial to watch the trend in prices of key vegetables such as onion, tomato and potato which can be impacted by rainfall. Core inflation though stable, can face upside risks due to second-round impact. The uncertainty related to the West Asia crisis and supply chain disruptions can keep global commodity prices elevated which can push up core inflation.
“On the positive side, lower prices of precious metals will provide some room. Overall, we estimate CPI inflation in the range of 5.0-5.2% in FY27,” noted the report.
