India’s retail inflation, as measured by the Consumer Price Index (CPI), ticked up to 2.07% year-on-year in August 2025, up from 1.61% in July. Though still within the Reserve Bank of India’s (RBI) target tolerance band of 2-6%, the rise signals a shift in consumer price pressures, especially in food and vegetable costs.
What’s Behind the Uptick
Food & Vegetable Prices
- Food prices posted a year-on-year decline of about 0.69% in August, compared to a steeper decline of 1.76% in July.
- Vegetable prices, though still in negative territory, dropped 15.92% versus 20.69% in July. The moderation of this fall helped push up overall inflation.
Base Effects and Weather
- A fading base effect is contributing to the rise. Because inflation was unusually low in recent months, upward pressure appears more noticeable when compared year-on-year.
- Above-normal rainfall in August, with projections for more in September, may have adversely affected summer-sown crops like rice, pulses, soybeans, and cotton, putting pressure on food supply.
Implications for Policy & Economy
- The current inflation reading is well-within RBI’s mandated 2-6% target range, marking the tenth consecutive month in which inflation has stayed within this band.
- Despite the rise, many economists believe the RBI may hold off on interest rate hikes for now, given that inflation remains low and signs of weakness persist in some sectors.
- Recent GST rate cuts on food and other consumer items are expected to begin showing effects, possibly helping to ease inflation in the coming months.
What to Watch Next
- How monsoon patterns unfold, especially in September, since adverse weather can quickly affect food production and prices. Reuters
- The pace of inflation in core categories (excluding food and fuel) to see if underlying demand pressures are building.
- Impact of government policy moves (tax changes, GST cuts) on consumer goods and how quickly the relief passes to consumers.
- RBI’s upcoming announcements, particularly how these inflation numbers affect future monetary policy decisions.
