Vijay Singh
New Delhi [India], July 28: Even a trip to the grocery store or a restaurant meal is still a bit more expensive than it was a year ago for many families. However, news reports frequently state that inflation is moderating. So, when inflation is declining, why does everything still seem so costly?
The answer is simple. Inflation is about the rate of price increases, not the rate of price decreases. Lower inflation rate indicates that prices are rising less rapidly than previously, but they are still rising.
The retail inflation in India, based on the Consumer Price Index (CPI), rose to 4.38% in June 2026 from 3.93% in May, according to the Ministry of Statistics and Programme Implementation (MoSPI). Food inflation was even higher at 5.32%, continuing to put pressure on household budgets.
Inflation is a rate of increase.
Imagine a car slowing down. When a car slows down from 80 kmph to 40 kmph, it is still moving forwards. Likewise, when inflation falls from 8% to 4%, prices are still going up, but not as fast.
Suppose the cost of a grocery bill was ₹5,000 last year and prices rose by 8%, then this year it would cost ₹5,400. If the inflation rate drops to 4% the next year, the same basket would cost approximately ₹5616 the next year. The prices have not dropped, they have just increased at a slower rate.
Why Consumers Still Feel the Pinch
The primary reason is that households recall prices they paid before, rather than the current inflation rate.
In the last few years Indians have been subjected to a series of hikes in food, rent, school fees, healthcare, transport and utility costs. Those earlier hikes in prices are still a part of the monthly bill.
Food continues to be one of the biggest concerns. MoSPI data indicates that inflation in the restaurant and accommodation services sector was 6.91% in June and 4.31% in the transport sector. These are the costs that people have to pay on a regular basis, and the cost of living seems to be always high.
Income Doesn’t Always Keep Up
Another difficulty is that wages may not increase as fast as the cost of living.
When an individual’s income goes up by 5%, and their household expenses go up by 6% or more, their purchasing power goes down. They can have a higher income but less purchasing power than previously.
One explanation for this is that wages have not kept up with inflation.
The real meaning of lower inflation.
That’s still good news for lower inflation. It indicates that the price pressures are easing and provides businesses and consumers with more certainty. It also assists the Reserve Bank of India, which has an inflation target of 4% with a tolerance band of 2%-6%, in making decisions on interest rates.
But lower inflation is not synonymous with lower prices. Few prices ever get back to their previous levels without a deflationary period, and that is rare.
Consumer relief is achieved when incomes increase at a higher rate than the cost of living and prices of essential goods remain stable. Until then, the cost of living will probably remain high, despite the fact that inflation seems to be under control.
