Retail inflation rises to 2.07% in August; rate cut hopes brighten
The increase was largely driven by higher prices of vegetables—particularly tomatoes—along with edible oils, eggs, meat, fish, and personal care items, according to government data.
Food prices have stalled their downward trend in retail inflation, based on the Consumer Price Index (CPI), as it rose to little over 2 per cent in August, the government reported on Friday. The main culprits in pushing the August number 46 basis points higher than July’s print of 1.61 per cent were tomatoes, combined with edible oils, eggs, meat, and fish.
“An increase in headline inflation and food inflation during August, 2025 is mainly attributed to increase in inflation of Vegetables, Meat and fish, Oil and fats, Personal care and affects, Egg etc,” a government statement said.
First uptick since Nov 2024
This is the first time the headline number has moved up after November 2024. However, as it is still below the 4 per cent median rate of the targeted inflation range, experts believe it might lead to a policy interest rate cut next month. Some economists felt that the low inflation trajectory is not positive for government finances.
There is also an estimation that the next headline number could see some moderation.
GST cut may ease CPI further
“The recent rationalisation of GST rates is expected to have a positive impact on the overall inflationary environment. We estimate that it could lower CPI inflation by 70–90 bps annually under the current basket, assuming effective pass-through to consumers,” said Rajni Sinha, Chief Economist with Care Edge, while lowering the inflation projection for FY26 to 2.7 per cent from 3.1 per cent earlier.
Some economists foresee a negative impact on government finances.
“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,” Paras Jasrai, Associate Director at India Ratings & Research, said, adding that the demand push due to GST rate rationalisation will be key to monitor for fiscal impact.
MPC meet in October in focus
All eyes are now on the next meeting of the Monetary Policy Committee, scheduled next month. “The current inflation is in line with the RBI’s average estimates for the quarter. With inflation still below the Central bank’s comfort zone, the MPC is likely to go for a rate cut of 25 bps in the upcoming meeting in October,” Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Group, said.
Published on September 12, 2025
