Retail inflation worsens to 2.07% in August; food inflation remains negative

India’s retail inflation edged higher to 2.07 per cent in August from 1.61 per cent in July, according to the Ministry of Statistics and Programme Implementation (MoSPI) data released on Friday. The rise marks a reversal after nine consecutive months of easing, though price levels remain comfortably within the Reserve Bank of India's (RBI) mandated 2-6 per cent tolerance band.

Food prices still in deflation

Food inflation continued in negative territory for the third straight month, recorded at -0.69 per cent in August. This reflected a sharp 107-basis-point increase compared with July's -1.76 per cent.

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The data showed food inflation at -0.70 per cent in rural areas and -0.58 per cent in urban centres. MoSPI attributed the uptick largely to higher prices in categories such as vegetables, meat and fish, oils and fats, eggs and personal care items.

Rural and urban inflation trends

Headline inflation in rural areas rose to 1.69 per cent in August from 1.18 per cent in July. In urban areas, inflation increased to 2.47 per cent compared with 2.10 per cent a month earlier.

Housing inflation stood at 3.09 per cent in August, marginally lower than July's 3.17 per cent. Education inflation moderated to 3.60 per cent from 4.11 per cent, while health inflation eased to 4.40 per cent from 4.57 per cent.

Transport and communication inflation was at 1.94 per cent, down from 2.12 per cent in July, and fuel and light inflation stood at 2.43 per cent against 2.67 per cent in the previous month.

State-level variations

Kerala reported the highest retail inflation among states at 9.04 per cent in August, while Assam recorded the lowest at -0.66 per cent. Economists say the continued undershoot of inflation compared to the Reserve Bank of India’s projections may persist into FY26. Madhavi Arora, lead economist at Emkay Global Financial Services, noted that retail inflation is likely to undershoot RBI’s estimates by at least 50 basis points, aided further by domestic GST rate cuts. She added that the central bank’s focus on one-year-ahead expected inflation may be "increasingly misplaced" as the global landscape tilts towards a disinflationary bias in Asia. According to her, downside risks to growth are becoming more evident with global resets and the prospect of monetary easing led by the US Federal Reserve, which could open up space for the RBI to consider easing later this year despite the Monetary Policy Committee raising the bar for fresh rate cuts.

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