In June 2025, consumer price inflation – or retail inflation as it is more commonly referred to as – was at a 77-month low of 2.1 percent. The last time retail inflation was lower than 2.1 percent was in January 2019, when it had stood at 2 percent.

So, why doesn’t inflation feel low? This low inflation figure hides more than it reveals – and may not reflect the rising costs in your wallet, home, school, or hospital. Let’s dig in.

1) In October 2024, retail inflation was 6.2 percent. It has fallen to 2.1 percent since. Now, many people confuse falling inflation with falling prices. Inflation measures how fast prices have risen. Indeed, what has fallen is this rate of price rise. But prices are still rising – just more slowly. Earlier, in October 2024, prices had risen 6.2 percent in comparison to October 2023. In June 2025, they rose 2.1 percent in comparison to June 2024.

2) Prices in June 2025 were higher by 0.6 percent in comparison to May 2025. So, prices rose year on year, they also rose monthly.

3) Prices have followed an upward trajectory. In the last five years, retail prices have risen around 28 percent. In the last 10 years, they have risen around 58 percent. So, on the whole, things are costlier now than they used to be 10 years back. That’s another reason why inflation doesn’t feel low.

4) The retail inflation of 2.1 percent is just one figure representing more than 140 crore Indians. It’s the inflation faced by an average Indian consumer. Chances are, your spending habits don’t match the ‘average’ Indian used in official inflation data. Given this, it’s important to understand the difference between the headline retail inflation figure published by the government and the personal inflation that anyone faces. These two figures could be very different.

5) Food items make up a little over 39 percent of the inflation basket. That means out of every Rs 100 spent by the average Indian, slightly more than Rs 39 goes toward food. The point being that nearly two-fifths of retail inflation in India is basically food inflation.

So, if food inflation falls, chances are retail inflation will fall as well. In June 2025, food prices saw a deflation of 1.1 percent, which basically means that on the whole, food prices fell 1.1 percent, and that is the major reason behind very low retail inflation.  

6) As people make more money, they spend a smaller proportion of their income on food. Hence, what matters in their context is the inflation in other items that make for the consumer price index, which measures retail inflation.

For this, we need to look at core inflation, which excludes food items, fuel and light items, petrol, diesel, and other fuels used for vehicles. This was at 4.5 percent in June, more than double the overall retail inflation of 2.1 percent.

The interesting thing is that in October 2024, when overall retail inflation was 6.2 percent, core inflation was 3.9 percent. This again reinforces the fact that retail inflation in India is majorly driven by food inflation.

7) There are other factors that may make the headline retail inflation and personal inflation feel different. Let’s take the case of house rents, which have gone through the roof in many big cities and their suburbs. In the consumer price index, housing rents (actually housing rents and garage rents) have a weightage of 9.5 percent.

This basically means that when calculating overall retail inflation, it’s assumed that Rs 9.5 of every Rs 100 spent by an average Indian goes towards paying housing and garage rents.

In June 2025, this inflation stood at 3.1 percent, implying that rents during the month were 3.1 percent higher than in June 2024. The interesting thing is that, in the last five years, rental inflation has never gone beyond 5 percent.

If you rent in a big city, 3.2 percent inflation likely feels far too low. But do remember these are average all-India figures.

Also, it’s very much possible that an individual might be spending more than 9.5 percent of their overall monthly spending, as assumed while calculating the overall retail inflation, on paying housing rent. This further explains the gap between official and felt inflation.

8)  Hospital and nursing charges have a weight of just 0.44 percent in the consumer price index, since not everyone visits a hospital every month. But for those who do, the expenses are real, and are far larger than this weight suggests.

In June 2025, the hospital and nursing charges inflation stood at 6.6 percent. But for individuals who have to go to a hospital during the course of any month, the weight of 0.44 percent makes no sense simply because a lot of money gets spent.

9) Or take the case of someone who has taken on a home loan to buy a house. The EMI paid would form a large proportion of monthly spending. This would leave lesser money to spend on other things and may also lead to lower savings. This might create the impression of higher prices.

10) This logic works for education as well. In June 2025, the inflation in tuition, school, and college fees stood at 5.4 percent. This education fee has a weightage of 2.9 percent in the overall retail inflation basket. This means little to parents paying high private school or college fees. The weightage is too low for them. A considerably higher proportion of the money being spent monthly goes towards this expenditure.

Further, taking an education loan to pay fees also lowers savings and squeezes spending elsewhere, adding to the feeling of rising costs.

11) If there is a wedding in the family and gold ornaments need to be made, you’ll feel the pinch. In June 2025, inflation in gold was 36 percent in comparison to a year earlier.

12) Moviegoers who buy popcorn every weekend already feel the pinch, irrespective of whether prices went up or not. This is primarily because popcorn prices in multiplexes are atrociously high to begin with. Now, whether their prices have gone up in the last one year or not, doesn’t really matter, given that they are so high to start with. The same logic works for someone who has bought an expensive mobile phone. Their point of reference leads them to this conclusion.

13) Let’s take the case of vegetable prices, which have a weightage of slightly more than 6 percent in the consumer price index used to calculate retail inflation. In June 2025, prices were down 19 percent in comparison to June 2024. Interestingly, vegetable prices have come down 35 percent since October 2024.

This is the main reason that has pulled down food inflation and hence, retail inflation. But it is worth remembering that someone – that is, the Indian farmer – is bearing the cost of this fall, leading to other repercussions.

14) Companies over the years have mastered the art of shrinking the size of their product without changing the price. So consumers end up paying more for less, without it showing up clearly in inflation data.  

15) Also, the basket of goods and services used to calculate retail inflation is based on consumer spending patterns, which were surveyed in 2011-12. Inflation still tracks obsolete items like cassettes, CDs, radios, and trunks, while ignoring many services we actually use. In fact, up until September 2024, inflation in horse cart fares was also being measured. Since then, this item seems to have been dropped. Tram fares are still being measured. Further, the weightage of landline charges is higher than that of a mobile phone handset.

Given these reasons, the basket of goods and services used to measure retail inflation needs to be revised so that we are closer to the real retail inflation figure.

In the end, headline inflation numbers may help the government and the Reserve Bank of India shape broad economic policy, but they hold little relevance for many individuals, given that their consumption baskets are very different from those of the average Indian, which are used in the government calculations.

Official inflation may guide policy, but it doesn’t reflect your bills. Your cost of living depends on your lifestyle, location, and spending priorities – and not on a national average. So, while the government sees 2.1 percent, what you feel could be double or more. And that disconnect is worth understanding.

Vivek Kaul is an economic commentator and a writer.

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