This is the third consecutive month that retail inflation has remained above the central bank’s medium-term target of 4%, driven by higher food prices, data released by the statistics ministry Monday showed.
The RBI has a tolerance band of 2 percentage points on either side of the 4% level.
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Rate hike imminent as CPI above RBI’s medium-term band of 4% for third month
The new CPI series, with 2024 as the base year, was rolled out in January. The index rose 4.5% in July.
Wholesale inflation edged higher to 9.9% year-on-year in August from 9.8% in July due to higher inflation in fuel and power and manufactured products. Inflation based on the Wholesale Price Index (WPI) was nil in August 2025.
Food Inflation Jumps to 6%
Economists expect retail inflation to rise above 5% in the coming months, raising the possibility of an interest rate increase by the RBI before the end of the year. The RBI Monetary Policy Committee (MPC) is next scheduled to meet on October 5-7.”Given RBI’s measures in withdrawing durable liquidity along with adverse global conditions, we continue to see scope for 50-75 basis points of rate hikes by the MPC, with the odds of an action in October increasing significantly,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.
The MPC kept the policy rate unchanged at 5.25% in its August meeting.
Sakshi Gupta, principal economist at HDFC Bank, expects the RBI to maintain the policy rate in its October meeting and remain in a wait-and-watch mode. “We expect the start of the rate hike cycle to be in the December/February policy for now,” she said.
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Aditi Nayar, chief economist at ICRA, said a rate hike could materialise at the December meeting, particularly if there is evidence of a generalisation in inflationary pressures and crude oil prices sustaining at elevated levels.
Among states, Telangana recorded the highest inflation at 6.3%, followed by Tamil Nadu (5.9%), Madhya Pradesh (5.6%), Andhra Pradesh and Odisha (5.5% each).
Food inflation picked up to 6% year-on-year in August from 5.5% in July. Rural food inflation was 6.1%, higher than 5.6% in urban areas. Overall rural inflation rose to 5.2% from 4.8% in July, while urban inflation increased to 4.3% from 4%.
Among the 12 consumption-based divisions, personal care, social protection and miscellaneous goods and services recorded the highest inflation at 15.2%. Next came restaurants and accommodation services at 8.4%, followed by food and beverages (5.7%), paan, tobacco and intoxicants (4.7%); and transport (4.6%).
Of the 358 items tracked, silver jewellery recorded the steepest price rise at 107.1% year-on-year in August, followed by ginger (73.8%), onion (48.3%), garlic (43.6%), and gold, diamond, platinum jewellery (35.5%).