India Jul-26 CPI Inflation edges up to 4.45% as food prices harden

FUEL INFLATION EDGES UP; FOOD INFLATION HARDENS

With the turmoil continuing in the Middle East, oil prices have bounced back to near $90/bbl levels. June had seen fuel inflation tapering as Brent Crude had fallen to $71/bbl. From that level, crude is now up to $91/bbl. Food inflation continues to harden, despite assurances that the El Nino impact on food production may be limited this year.

Inflation expectations continue to be higher as much of the headline inflation continues to be under check due to the government holding petrol and diesel prices. With WPI inflation still close to 10%, some retail transmission may still be waiting to happen. For now, it looks like retail inflation may have some more upside before peaking.

Data Source: MOSPI

KEY DRIVERS OF HEADLINE INFLATION IN JUL-26

• Over the last 3 months; Food inflation has gone up from 4.78% to 5.52%; led by ginger, garlic, and onions. El Nino is likely to hit Kharif output, albeit moderately.

• Transport inflation, an outcome of fuel prices, has surged from 0.30% to 4.43% in last 3 months. It is more the trickle-down effect of elevated crude and gas prices.

• In terms of products; Potatoes, Motor Cars, Lady’s Fingers, Peas, and Tomatoes curtailed inflation. Pressure came from Silver, Ginger, Garlic, Gold, and Onions.

• Personal care, gold and silver have been a source relief falling from 18.46% to 14.77% on the back of a sharp correction in the price of gold and silver, since Jan-26 highs.

WHAT IS THE OUTLOOK FOR CPI INFLATION FROM HERE?

Let us look at the impact of 4 critical baskets and the impact that it could have in the coming months on consumer inflation.

• Let us look at food inflation, with the food basket spiking to 5.52% in July 2026. Rural food inflation was 77 bps higher than urban food inflation. El Nino could curtail Kharif output by 3-4%, but the real concern is the impact of reservoir levels on Rabi crop.

• Crude oil has been volatile, with an upward bias. Despite the risk of supply glut, the Brent crude prices have crossed $91/bbl. This is largely on account of tanker traffic down to a trickle through the Straits of Hormuz and via the Bab-al-Mandeb.

• In July 2026, core inflation tapered to around 3.85%. WPI inflation continues to stay elevated at 9.87%, indicating further pressure on core inflation. RBI MPC minutes have hinted at 1 rate hike in 2026; indicating that core inflation should be subdued.

• If one looks at the break-up of rural and urban inflation; then rural inflation is higher in case of F&B, clothing, footwear, home fuels, furnishings, transport, Recreation, Communication, and gold & silver. In other baskets, urban inflation leads. Overall, rural inflation at 4.84% in July 2026 is higher than urban inflation by 88 bps.

The RBI held repo rates in the August 2026 meeting at 5.25%. However, the higher inflation reading is putting pressure on the RBI to hike rates. RBI MPC minutes hint at one rate hike in 2026. It would be interesting to see if this guidance can check inflation.