Retail inflation climbs to 2.1% in August as food prices soar

NEW DELHI: India’s retail inflation accelerated to 2.1% yearon-year in August from an eight-year low of 1.6% in July, as food prices increased, official data released Friday showed. Despite the rise, it remained below the central bank’s target range of 4% with a margin of two percentage points on either side of that figure.

“An increase in headline inflation and food inflation during the month of August is mainly attributed to increase in inflation of vegetables, meat and fish, oil and fats, personal care and affects, egg etc.,” the statistics ministry said in a statement accompanying the Consumer Price Index (CPI) data. Food inflation stayed in negative territory for the third consecutive month, easing by 0.7% in August compared with 1.8% in July. “Headline inflation inched up in August as the favourable base effect waned and food prices moved out of deflation,” said Rajani Sinha, chief economist at CareEdge Ratings. Experts expect the Reserve Bank of India monetary policy committee to hold the policy rate steady at its next meeting on September 29-October 1. The central bank has already cut rates by 100 basis points this year, bringing the repo rate to 5.5%.

“The stronger-than-expected GDP growth in Q1FY26, and the positive impact of the GST reforms on growth in the later quarters, suggest a status quo for the repo rate in the October 2025 policy review,” said Aditi Nayar, chief economist at ICRA.

‘GST Impact to be Visible from Oct’
India’s gross domestic product (GDP) grew 7.8% in the June quarter.

However, Sinha noted that the prolongation of 50% US tariffs on Indian imports coupled with downward pressure on inflation from goods and services tax (GST) reductions, which take effect September 22, may prompt the RBI to consider further rate cuts.

GST on key household items will drop to 5% following the overhaul of the indirect tax. Economists expect the full impact of these lower levies to show from October, potentially lowering inflation by 50–90 basis points annually under the current basket, assuming effective pass-through to consumers. For FY26, inflation forecasts by economists range from 2.6% to 3.3%.

Rural inflation increased to 1.7% year-on-year in August from 1.2% in July, while urban inflation rose to 2.5% from 2.1%.

Out of 22 major states and union territories, Kerala recorded the highest inflation at 9.04%, followed by Karnataka and Jammu & Kashmir (3.8% each), Punjab (3.5%) and Tamil Nadu (2.9%).

FOOD, CORE
Vegetable prices fell by 15.9% year-on-year in August, while pulses inflation was down by 14.5%. Potato prices dropped by 36.8% and that of onions by 39.1%. In contrast, tomato rates surged by 16.9% after a gap of seven months. Inflation in eggs was 3.1%, while it was 1.5% in meat and fish. Cereals inflation declined to a 44-month low of 2.7%.

Oil inflation was a major outlier, rising to a four-year high of 21.2% in August.

“Oils continue to exert upward pressure due to higher global prices as well as low base effect,” said Madan Sabnavis, chief economist at Bank of Baroda.

Sinha said persistently high double-digit inflation in edible oils warrants close monitoring, given weak sowing trends, import dependence and elevated global prices.

Core inflation held steady at 4.1% in August.

“High gold inflation (40.3%, at a five-year high) continues to keep core inflation above 4% in August,” noted Paras Jasrai, associate director at India Ratings and Research (Ind-Ra).

OUTLOOK
Ind-Ra expects retail inflation to be in the range of 1.7-1.9% in September, while ICRA projects it at 2%.

“Looking ahead, despite the healthy trends in kharif sowing, large excess rains, and flooding in some parts of the country in late August and early-September could impact the kharif crop yields, and consequently output and prices, and thus, remain a key monitorable,” said Nayar.

Jasrai said that while food inflation in September will have the comfort of a favourable base effect, the flood situation in key agricultural areas may push prices up.