India’s retail inflation accelerated to 2.07% in August, as food prices inched up. Annual retail inflation quickened from a revised 1.61% in July and was above a Reuters poll of 2.1%.
Commentary:
Upasna Bhardwaj, chief economist, Kotak Mahindra Bank, Mumbai
The August headline CPI inflation has come inline with expectations further reinforcing the underlying benign trajectory. Going ahead, the one-time GST cut impact is likely to play out in the year ahead offsetting, in part, the impact of adverse base effect into FY27.
While we see a pause by the RBI in the upcoming policy, we do see some scope for rate cuts worth 25-50 bp opening up from December policy if downside risks to growth materialise and the Fed moves ahead with aggressive rate cuts.
Garima Kapoor, economist, institutional equities, Elara Securities, Mumbai
Sluggishness in food prices amid benign fuel and clothing inflation supported modest print on headline CPI at 2.1% – exactly in line with our expectation. Subdued headline inflation, along with an expected downside to the retail inflation owing to GST rate cuts, suggests that there is a further downside to the RBI’s CPI projection. As such, we do not rule out another 25-bps rate cut by the RBI in this financial year.
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Radhika Rao, senior economist, DBS bank, Singapore
August inflation was in line with expectations, with the reading returning to the lower bound of the inflation target. Food costs were up on sequential basis, impacted by instances of a surge in monsoon in few areas of the country. The central bank will weigh the strong GDP print for 1QFY26 against the soft inflation trend, likely leaning towards a pause at the next review.
Inflation is expected to rise in the quarters ahead, with the pace of sequential momentum to be partly offset by relief in indirect tax rates. Policy guidance will be important considering the firm long-term bond yields and widening spreads vs SDLs.
Sakshi Gupta, principal economist, HDFC bank, Gurugram
Inflation print continues to remain low at 2.1% for August. We expect inflation readings to remain low for the remaining part of 2025, both supported by lower food inflation as well as the impact of GST rate cuts. With even a 50-60% pass through of GST cuts, we see FY26 inflation moving down by 20-30 bps compared to our current estimate of 2.8%.
Sachchidanand Shukla, group chief economist, larsen & toubro, Mumbai
Supply-side conditions are turning out to be much more favourable.
The decline in inflation has yet again primarily been driven by the food component, which registered a year-on-year contraction of -0.69%. So the key question is – the extent of moderation in food inflation (is) turning out to be larger than that expected during the June MPC meeting but how long will it last?
Devendra pant, chief economist, India ratings and research, New Delhi
The September food inflation while will have favourable base effect, the flood situation may push food prices up. However, the strong base effect of last year, may keep food inflation in check until December 2025.
Full impact of GST will start reflecting from October. We expect FY26 retail inflation to average around 3.0%. 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 cut will be key to monitor for fiscal impact.
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