Pain remains: on inflation Politics & News

The continued fall in inflation to a 77-month low of 2.1% in June 2025 should serve as a significant source of relief for policymakers. The general public, however, would not be too thrilled. There is some good news for them, but also a significant dose of pain. Food inflation, for example, saw a significant easing, although that too is a seasonal effect rather than a structural one. Food and beverage prices contracted 0.2% in June 2025 on a high base of 8.4% in June last year. Key items such as vegetables, pulses, spices and meat saw prices falling in June compared to their levels last year. But food is not all that people spend their money on. The data reveal that there were several items and services of common consumption that saw inflation quickening in June. The education and stationery segment saw inflation quicken to 4.4% in June, the highest in 15 months. This was driven by a jump in the prices of school, college, and private tuition. Inflation in the health-care category, too, was at a 15-month high in June. Compounding this, the personal care segment saw inflation jumping to a blistering 14.8% in June, the eighth month of double-digit inflation in the last nine months. Products such as soap, toothpaste, shampoo and sanitary napkins — items of daily or regular use and by no stretch luxuries — have become more expensive. So, overall, food is cheaper, but nearly everything else is more expensive.

This leads to an important policy question, one that has been asked several times before: is the headline inflation data adequately capturing the price rise the average Indian faces? The food basket itself carries a 46% weight in the overall Consumer Price Index (CPI), meaning that any change in this category has an inordinate impact on the headline number. The recent Household Consumption Expenditure Surveys show that food comprises a much smaller share of about 30% in the expenditure of households. Bringing the CPI weight of food down to align with this will allow the overall CPI to be more representative. To be fair, that process is on, with the Ministry of Statistics and Programme Implementation in the process of updating the CPI. The CPI base year — so far set as 2011-12 — is being updated to a more recent time period, and the weights of the different categories are also being revised. This update cannot happen fast enough, as even monetary policy is currently dependent on this outdated and unrepresentative measure. In the meantime, it is important not to get swayed by the fall in the headline number itself. The felt experience of the average Indian is described in the details, and it is still a painful one.