Retail Inflation Rises Slightly in August After 9 Months
India’s retail inflation rose to 2.07% in August 2025 after nine months of decline, primarily due to a slight increase in food prices. However, it remained within the Reserve Bank of India's (RBI) tolerance band for the tenth consecutive month.
Food prices increased by 0.69%, while vegetable prices dropped significantly by 15.92% in August. In comparison, July had seen a 1.76% decline in food prices and a 20.69% fall in vegetable prices.
Still Within RBI's Tolerance Band
Despite the rise, retail inflation remains within the RBI’s mandated range of 2% to 6% for more than three consecutive quarters, as required by policy.
Impact of Above-Normal Rainfall
Above-normal rainfall in August and expectations of similar patterns in September may lead to higher food prices due to potential damage to summer-sown crops such as rice, cotton, soybean, and pulses.
GST Rate Cut Expected to Ease Inflation
Prime Minister Narendra Modi has indicated that GST rate cuts on food items and hundreds of consumer goods may help ease inflation in the coming months.
Top 5 States with Highest Inflation in August
According to the Ministry, Kerala, Karnataka, Jammu & Kashmir, Punjab, and Tamil Nadu recorded the highest year-on-year inflation in August, although all stayed within the RBI’s 2–6% limit.
Inflation Trend and Policy Response
In July, retail inflation had dropped sharply to 1.55%, the lowest since June 2017. Food prices have remained a concern for policymakers aiming to maintain inflation around 4%.
Unlike many advanced economies where inflation has been a serious concern, India has managed to keep its inflation trajectory under control.
The RBI has kept its benchmark repo rate unchanged at 6.5% for the eleventh consecutive time, before making a rate cut in February 2025—the first in nearly five years.
Future Outlook and Inflation Forecast
Analysts expect inflation to stay under control, allowing the RBI to focus on economic growth. The recent rate cut is seen as a positive signal. In its latest MPC meeting, the RBI revised its inflation forecast for FY 2025–26 from 4% to 3.7%.
Assuming a normal monsoon, the quarterly inflation forecast for FY 2025–26 is as follows:
- Q1: 2.9%
- Q2: 3.4%
- Q3: 3.9%
- Q4: 4.4%
Risks to this forecast are considered to be evenly balanced.