India’s retail inflation rose to a 20-month high of 4.82% in August, driven by higher food and fuel prices, taking it above the Reserve Bank of India’s (RBI’s) 4% target midpoint for the third consecutive month since January 2025.
Inflation, as measured by the Consumer Price Index (CPI), was broadly in line with the median estimate of 4.9% from 21 economists .
Food inflation, a key constituent of the CPI, firmed up to 5.95% in the month from 5.52% in July, 5.32% in June, 4.78% in May and 4.20% in April, showed provisional data released by the ministry of statistics and programme implementation on Monday.
Although inflation remains within tolerance range of 2% to 6%, a further rise in prices may push the central bank to increase policy rates, which could suppress growth in the coming quarters.
In August, RBI’s Monetary Policy Committee (MPC) revised its inflation projection downwards to 5.0% (from 5.1% earlier), but cited risks arising from an expected below-normal monsoon amid El Niño conditions, elevated and volatile energy prices due to deepening West Asia crisis and possible second-round effects from elevated input costs that could push up headline inflation in the coming months, with the peak reached during Q3FY27.
“Going forward, we expect headline inflation to stay range-bound near 4.5-5.0%, with food the key swing factor amid uneven monsoon and El Niño-related uncertainty. The main risk is that high wholesale food and input costs eventually push up retail prices, alongside any rise in crude oil or fresh volatility in vegetable prices,” Rajeev Sharan, head of research, Brickwork Ratings.
West Asia war impact
Crude oil prices have remained elevated this month rising 8-9% to over $91 a barrel (Brent crude) driven by elevated tensions in West Asia and concerns over maritime shipments through the Strait of Hormuz. Prices have now breached the $100-a-barrel mark and are rising.
This has raised inflation in transport services to 4.6% in August, up from 4.43% in July. Inflation is even higher for transport services for goods, at 14.64%.
“While the uptick (in inflation) was broad-based, driven by 10 of the 12 divisions, the food and beverages, housing, water, electricity, gas and other fuels, and information and communications divisions accounted for a bulk of the 37-basis-point uptick in the headline print in August 2026 relative to July 2026,” said Aditi Nayar, chief economist, head-research and outreach, Icra Ltd.
“While the hardening in F&B inflation was expected, the extent of the same is slightly on the higher side. We project F&B inflation to harden further, crossing the 7.0% mark by October 2026, which would exert upward pressure on the headline inflation number, she said, adding that inflation may cross the 5.0% mark in September 2026, and harden further to around 6.0% during October-November 2026.
The war in West Asia has weighed on India’s economy, prompting a currency slump and raising stagflation risks. However, gross domestic product (in Q1 FY27 remained firm at 7.8% even though projections by various agencies suggest that the country’s growth is expected to moderate in the current fiscal.
According to RBI, GDP growth in FY27 is expected to remain steady at 6.7% (down from 6.6% in June and 6.9% estimated in April), a view shared by the World Bank, which has pegged India’s GDP growth at 6.6% this fiscal year. The Asian Development Bank, which projected India’s growth at 6.9% this fiscal year in April, has downgraded the forecast to 6.6% for FY27.
RBI kept interest rates unchanged at its meeting on 5 August, striking a cautious tone as it monitored the impact of surging oil prices on the economy and pledged to curb excessive currency moves.
The central bank’s six-member MPC voted unanimously to keep the benchmark repo rate at 5.25% and retain a neutral policy stand, indicating that it is in a wait-and-watch mode, especially with regard to food and fuel price pressures.
Costlier than before
Silver, gold, diamond, and platinum jewellery, as well as vegetables such as onion, ginger, and garlic, were among the items that experienced the strongest inflationary pressure. Potato, tomato, lady finger, pointed gourd and kundru (Ivy gourd), motor car and jeep remained the top items with low all-India inflation, the data showed.
Inflation was the highest in the southern states of Andhra Pradesh, Telangana, and Tamil Nadu, as well as Madhya Pradesh, Odisha, Puducherry and Dadra and Nagar Haveli and Daman and Diu. It was the lowest in Delhi, Mizoram, Tripura, Meghalaya and Nagaland in August.
Personal care, social protection, and miscellaneous goods and services, as a group, had the highest inflationary effect at 15.17%, up from 14.77% in July. Restaurant and accommodation services prices rose 8.38% in August against 7.72% in July.
The latest CPI data can’t be compared with the year-ago period because the index was reset in January. Retail inflation was recorded at a revised 2.74% in January, marking the debut of the new series with 2024 as the base year. Prices rose by 3.21% in February, 3.4% in March, 3.48% in April and 3.93% in May, 4.38% in June and 4.45% in July. Inflation under the old CPI series, with 2012 as the base year, was 1.33% in December and 0.71% in November.
The new inflation index is built on spending patterns captured in the 2023-24 Household Consumption Expenditure Survey. The recalibrated weights for index components have modestly pushed up India’s headline inflation readings, with the share of core items rising by about 10 percentage points and volatile food prices having a smaller say.
The new series increases the share of housing, reshaping inflation measurement, easing volatility and altering how RBI interprets headline inflation trends. Housing inflation stood at 2.61% last month, compared with 2.22% in July, 2.10% in June, 2.12% in May, 2.15% in April, 2.11% in March, and 2.11% in February.
Policymakers now have a more up-to-date basis for assessing real incomes, consumption trends and purchasing power.