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Retail inflation rate inched up to 2.07 per cent in August from an eight-year low of 1.61 per cent in July amid a pickup in food prices even as they remained in deflationary zone, data released by National Statistics Office (NSO) on Friday showed. Food inflation, based on the Consumer Food Price Index (CFPI), stood at (-)0.69 per cent in August as against (-)1.76 per cent in July.
Within food, tomato prices were up 16.9 per cent year-on-year in August after remaining in the negative territory for seven months, while the inflation rate for edible oils such as mustard oil also rose 24.18 per cent in August from 19.92 per cent in the previous month. Food inflation in rural areas was lower at (-)0.70 per cent than (-)0.58 per cent seen in urban areas in August.
The headline inflation rate for July was revised up to 1.61 per cent from the initial estimate of 1.55 per cent. With the slightly higher print in August, the headline retail inflation rate, based on Consumer Price Index (Combined), has now again entered within the 2-6 per cent band of the Reserve Bank of India’s (RBI’s) medium-term inflation target. Economists said the floods and heavy rainfall seen in many states including Punjab, Himachal Pradesh, Rajasthan and Telangana may push inflation rate higher in the next print even as a high base effect will help to keep it in check. The slower inflation rate may, however, impact the government’s balance sheet. The inflation rate is likely to ease further in October as the full impact of the rate cuts under GST 2.0 comes into play with the rate cuts effective from September 22.
“While the September 2025 food inflation will have the comfort of a favourable base effect (September 2024: 9.2 per cent), the flood situation in key agricultural areas may push food prices up. However, the strong base effect of last year, may keep food inflation in check until December 2025. Thus, Ind-Ra expects the retail inflation to moderate to be in the range of 1.7-1.9 per cent in September 2025”
“The full impact of GST rate rationalisation will start commencing from October. We expect FY26 retail inflation to average around 3 per cent. While the low inflation trajectory is good news for the consumers, it is not so good for the government balance sheet. Impact of slower GDP growth is already visible in government finances and tax collection growth trailing FY26 budget targets. The demand push due to GST rate rationalisation will be key to monitor for fiscal impact,” Paras Jasrai, economist and associate director, India Ratings & Research said.
The food and beverages segment, which accounts for 45.86 per cent of the total weight of CPI (Combined), registered an inflation rate of 0.05 per cent in August, up from (-)0.84 per cent in the previous month. Inflation rate for perishables such as vegetables inched higher to (-)15.92 per cent in August from (-)20.69 per cent in July. Inflation rate for cereals eased to 2.70 per cent in August from 3.03 per cent in the previous month, while for pulses, it declined further to (-)14.53 per cent in August from (-)13.76 per cent. Inflation rate for milk and products also inched lower to 2.63 per cent in August from 2.74 per cent in the previous month, the data showed.
Core inflation — inflation excluding food and fuel — remained steady at 4.11 per cent in August. High gold inflation, which stood at 40.27 per cent in August as against 36 per cent in July, added to the upward pressure on core inflation. Services inflation, as captured by the miscellaneous category, eased to a 14-month low of 5.05 per cent in August as against 5.01 per cent in the previous month.
“The rise in core goods inflation was due to rise in gold prices reflected in personal care and effects. Meanwhile, core services inflation moderated to 3.4 per cent in August versus 3.6 per cent in July, led by softer inflation in education services, transportation and communication and healthcare services. Core-core inflation which excludes gold and silver and fuels, remains subdued at 3.1 per cent YoY in August versus 3.3 per cent in July. Core-core inflation has been low for nearly two years, indicating the presence of a negative output gap,” Gaura Sen Gupta, chief economist, IDFC First Bank said in a note.
Going ahead, with lower-than-expected food inflation and the expected moderation in core inflation due to the reduction in the Goods and Services Tax rates, economists said FY26 inflation is seen closer to 3 per cent level. “…we have revised our inflation forecast down to 3.2 per cent from 3.5 per cent for this fiscal. This adjustment allows for potential changes in monetary policy, and we expect the RBI to cut the repo rate another 25 basis points later this fiscal,” Dharmakirti Joshi, chief economist, Crisil said.
