India’s retail inflation rises as food prices increase

INDIA – India’s retail inflation quickened to 2.07% in August after food prices rose compared with the previous month, according to official data released.

The figure was higher than July’s revised 1.61% but closely aligned with a Reuters poll projection of 2.1%.

The Reserve Bank of India (RBI) is required to keep inflation within the 2% to 6% band for three consecutive quarters, a threshold that remains intact for now.

India’s economy, the fifth largest in the world, is projected to grow by 6.5% in the current financial year, faster than other major economies.

Even so, subdued inflation has weighed on corporate performance and equity markets, with tariffs of up to 50% on exports to the United States adding to concerns.

With prices contained and growth challenges emerging, expectations are building that the RBI could consider another policy rate cut before the end of the year.

The central bank’s monetary policy committee will meet again on October 1 to decide on interest rates.

Kotak Mahindra Bank economist Upasna Bhardwaj said she expects the RBI to hold rates steady in October but added that cuts worth 25 to 50 basis points may be possible from December if growth slows further.

The RBI’s repo rate, the policy benchmark, is currently set at 5.5%, equivalent to about US$0.066 (per 1 rupee).

Food prices and rainfall impact

Headline inflation rose largely because of higher costs of vegetables, meat and fish, cooking oils, eggs, and personal care products between July and August.

Food prices overall fell 0.69% in August from a year earlier after a steeper 1.76% drop in July, while vegetable prices were down 15.92% after a 20.69% fall the previous month.

Officials warned that heavy rainfall in August, with similar weather forecast for September, may damage summer crops such as rice, cotton, soybean, and pulses, which could push food prices higher.

Core inflation, which excludes food and energy, remained stable at 4.1% in August compared with 4% to 4.12% in July, according to estimates from economists.

Tax cuts and growth risks

The government’s reduction of taxes on food and consumer goods is expected to ease inflationary pressures in the coming months.

HDFC Bank economist Sakshi Gupta said lower consumption taxes could reduce the FY26 inflation forecast by 20 to 30 basis points if even half of the cuts are passed on to consumers.

At the same time, weaker growth linked to high U.S. tariffs on Indian exports may limit companies’ ability to increase prices.

Madhavi Arora, chief economist at Emkay Global Financial Services, said global monetary easing led by the U.S. Federal Reserve could highlight risks to growth and create space for additional policy adjustments by the RBI later this year.

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