Key Points

Official data released on Friday showed that retail inflation, measured by the Consumer Price Index (CPI), climbed to 2.07% year-on-year in August 2025, compared with 1.61% in July.

The increase of 46 basis points, though notable, still kept inflation well within the Reserve Bank of India's (RBI) 2-6% comfort zone.

Food prices, which had remained moderate for several months, began to firm up.

Inflation has been a concern for many countries, including advanced economies, but India has largely managed to steer its inflation trajectory well. The RBI held its benchmark repo rate steady at 6.5 per cent for the eleventh consecutive time, before cutting it for the first time in about five years in February 2025.

After the recent RBI MPC meeting, the inflation outlook for the year 2025-26 was revised downwards from the earlier forecast of 4 per cent to 3.7 per cent.

Hanna Luchnikava-Schorsch, Head of Asia-Pacific Economics at S&P Global Market Intelligence, said the August print was in line with their expectations.

"India's headline CPI inflation edged up to 2.1% year on year in August from 1.6% year on year in July, aligning with our projections. As we anticipated, inflation bottomed in July, with consumer prices rising at a faster clip in August on the back of fading base effects, solid demand, and weakening rupee," she noted.

From now on, she expects inflation to accelerate but remain under control.

"The effects of GST rate cuts should lower the pace of acceleration from October onwards, keeping the headline inflation rate within or near the central bank's 4% target range midpoint through the end of 2025," she added.

S&P Global now projects CPI inflation to average 3.3% in FY26, down from an earlier forecast of 3.5%.

The PHD Chamber of Commerce and Industry (PHDCCI) welcomed the inflation data, linking the modest rise in inflation to easing pressures across key categories.

"Looking ahead, we anticipate a further decline in CPI inflation, aided by the GST 2.0 reforms package. The proposed simplified two-tier structure will reduce production costs, translate into lower prices, and, in turn, stimulate consumption," said Hemant Jain, President of PHDCCI.

Rajani Sinha, chief economist at CareEdge, called the August print "comfortable" despite the slight uptick.

"Headline inflation inched up to 2.1% in August as the favourable base effect waned and food prices moved out of deflation. However, it remained at comfortable levels owing to muted food inflation," Rajani Sinha said.

Rajani Sinha further noted that looking ahead, food inflation is likely to stay moderate, supported by healthy agricultural activity and a favourable base.

"A good monsoon progress, adequate reservoir levels, and strong kharif sowing bode well for food price stability," Sinha said.

Sinha sees GST rationalisation as an additional cushion.

"We estimate that it could lower CPI inflation by 70-90 bps annually under the current basket, assuming effective pass-through to consumers. With food inflation subdued and demand-side pressures contained, we now lower our inflation projection for FY26 to 2.7% from 3.1% earlier," the CareEdge chief economist added.

Dharmakirti Joshi, chief economist at Crisil, said, "Given the lower-than-expected food inflation and the expected easing of core inflation in the coming months due to the reduction in the goods and services tax, we have revised our inflation forecast down to 3.2% from 3.5% for this fiscal."

This adjustment, according to Joshi, allows for potential changes in monetary policy. "...we expect the RBI to cut the repo rate by another 25 basis points later this fiscal."

Soumya Kanti Ghosh, chief cconomic adviser at State Bank of India, was a bit cautious. "With August inflation print a tad higher than the 2% mark, a rate cut in October looks onerous. Even a rate cut in December looks a little difficult if growth numbers for Q1 and Q2 are taken into consideration," Ghosh said.

The CPI inflation data for September 2025 will be released on October 13, 2025 (Monday) or the next working day if the 13th happens to be a holiday.

- ANI