Inflation’s All Zen Unless You Buy Coconuts, Oils or Little Gold on the Side

India’s retail inflation eased to an eight-year low of 1.55% in July, a picture of calm that hides a few restless prices beneath the surface. The drop was led mainly by cheaper food, especially vegetables and pulses, both in deep deflation last month. That fall was enough to pull overall food inflation into negative territory for the second month running.

Yet not every item in the food basket is playing along. Edible oils have been the stubborn outlier, with inflation in the “oils and fats” category stuck in double digits since November 2024. 

Refined and mustard oils, which together account for three-fourths of the sub-group’s weight in the Consumer Price Index, have been serving up price rises of about 22% and 19%, respectively, for six months straight. And that’s despite the government trimming effective customs duty on crude edible oils by 11 percentage points to 16.5% in May.

Part of the heat comes from the weaker sowing of oilseeds this Kharif season. As of August 8, the total area under Kharif oilseeds was 17.56 million hectares, 3.7% lower than a year ago. Even so, the current surge follows a steep two-year slide in prices. Refined oil today is still about 17% cheaper than its May 2022 peak and coconut oil have staged an even more dramatic climb.

Inflation in coconuts hit 59% in July, while coconut oil prices shot up by a record 132%, the sharpest jump ever. This surge helped propel Kerala to the top of the state-level inflation chart at 8.89%, more than five percentage points above Jammu and Kashmir, which came a distant second at 3.77%.

Vegetables, still in double-digit deflation on an annual basis, managed a sequential price rise in July, as they often do in the summer months. The vegetable index was up 11.6% from June, just shy of the long-term average of 12.1%. Tomato prices climbed 36% month on month, yet annual inflation was still at minus 34%, a reminder that prices had risen even faster last year. In October 2024, a tomato surge briefly pushed headline inflation above the Reserve Bank of India’s 2–6% medium-term target range for the first time in more than a year.

Bullion has also been on a tear in recent months. Gold inflation stood at 36% in July and silver at 22%. Together, they account for just 1.19% of the CPI basket, yet their rise has kept core inflation anchored above 4%.

It is time to smell some small items. 

Coffee powder inflation perked up 25% in July, with a strong month-on-month rise, though its tiny 0.06% weight in the CPI means it barely stirs the overall number.

Looking ahead, the calm may not last. July’s unusually low reading was flattered by a favourable statistical base from last year’s high prices, a quirk that will fade from November and make annual inflation look hotter. The RBI expects inflation to more than double from 2.1% in the July–September quarter to 4.4% in the January–March quarter, then rise further to 4.9% in the April–June quarter. For now, the headline number may look zen, but the undercurrents are already stirring.