India's headline Consumer Price Index (CPI) inflation held at 4.38 per cent in June 2025, broadly in line with economist forecasts, as food prices and fuel pass-through kept upward pressure on the index. Over the next two quarters, economists expect inflation to remain range-bound between 4 and 4.5 per cent, with monsoon distribution and El Niño-linked rainfall variability emerging as the primary swing factors.

What Drove June Inflation

Food inflation remained the dominant contributor, clocking 5.32 per cent overall in June. Among individual commodities, silver jewellery recorded the sharpest price surge at 133.21 per cent, while gold jewellery prices rose 36.82 per cent. In the non-food segment, higher crude oil prices fed through to retail pump prices, pushing transport inflation to 4.3 per cent, according to Madan Sabnavis, Chief Economist at Bank of Baroda.

What Economists Are Saying

Sabnavis noted that while cooling global gold and silver prices could moderate inflation in the personal care category, base effects will keep it elevated in the near term. “Going ahead, we expect the current momentum in inflation to continue, with food prices likely to remain influenced by monsoon developments,” he said.

Radhika Rao, Senior Economist and Executive Director at DBS Bank, described June inflation as slightly above consensus, reflecting the continued normalisation of food prices and the pass-through of pump price increases implemented in mid-May. She added that markets are closely tracking the spatial and geographical distribution of the ongoing southwest monsoon.

“Encouragingly, the nationwide rainfall shortfall narrowed considerably in July to 15 per cent, from over 40 per cent at the end of June, with key crop-producing belts across central and north-west India seeing improved rainfall,” Rao said.

Upside Risks and RBI Implications

According to Rajeev Sharan, Head of Research at Brickwork Ratings, the principal upside risks stem from a potential rebound in crude oil prices and sustained strength in bullion markets. Conversely, a favourable monsoon outcome could ease food prices and create headroom for continued accommodation by the Reserve Bank of India (RBI).

This comes amid an already cautious monetary policy backdrop, with the RBI closely monitoring food price dynamics before signalling any further rate action. A prolonged monsoon deficit — particularly in key agricultural states — could complicate that calculus significantly.

Monsoon Progress Remains the Deciding Factor

The southwest monsoon's uneven spatial spread has been a recurring concern this season. While the 15 per cent shortfall in July marks a notable improvement from June’s 40-plus per cent deficit, economists caution that sustained and well-distributed rainfall across central and north-western crop belts is essential to keep food inflation in check through the kharif harvest season. Any renewed El Niño-driven disruption could push food inflation back toward the upper end of the projected band or beyond.

With the next CPI print due in mid-August, all eyes will be on whether monsoon progress translates into visible moderation in vegetable and cereal prices.