Retail inflation rises to 8-month high of 4.82% in August as food prices spike

Reports coming in for today mention that India’s retail inflation accelerated to an eight-month high of 4.82 percent in August from 4.45 percent in July, as elevated food prices kept pressure on household budgets and pushed headline inflation further above the Reserve Bank of India’s medium-term target.

Consumer Price Index-based inflation has now remained above the RBI’s 4 percent target for three consecutive months, after rising from 3.93 percent in May to 4.38 percent in June and 4.45 percent in July. The August reading is the highest in the eight months for which inflation data are available under the new CPI series with 2024 as the base year.

The latest print assumes greater significance for monetary policy as it will be the last retail inflation number available before the RBI’s Monetary Policy Committee meets from October 5 to 7. The September CPI data will only be released on October 12.

At its August meeting, the MPC unanimously kept the repo rate unchanged at 5.25 percent and retained a neutral stance, signalling that future policy action would depend on how the expansion-inflation balance evolves.

"Headline inflation came in line with our expectations. We expect the 2QFY27 average inflation to be around 20bp elevated than RBI’s estimate of 4.7 percent. Overall, given RBI’s measures in withdrawing durable liquidity along with adverse global conditions we keep see scope for 50-75bp of rate hikes by the MPC, with now the odds of an action in October increasing significantly," stated Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.

Food prices stay a pressure point

Food inflation accelerated further in August, with the Consumer Food Price Index rising 5.95 percent year-on-year compared with 5.52 percent in July. Rural food inflation was elevated at 6.13 percent, while urban food inflation stood at 5.64 percent.

Headline inflation additionally remained considerably elevated in rural India. Rural CPI inflation rose to 5.23 percent in August from 4.84 percent in July, while urban inflation increased to 4.31 percent from 3.96 percent.

The climb in food inflation was uneven across commodities. Onion inflation more than doubled to 48.27 percent in August from 22.54 percent in July, while garlic inflation increased to 43.60 percent from 35.36 percent. Ginger prices remained sharply elevated, with inflation at 73.82 percent.

Some vegetables, that stated, provided relief. Tomato prices declined 31.09 percent from a year ago, while potato prices declined 13.14 percent.

Services, precious metals add to pressure

Price pressures were not restricted to food.

Inflation in restaurants and accommodation services stood at 8.38 percent in August, while transport inflation was 4.60 percent. Personal care, social protection and miscellaneous goods and services recorded inflation of 15.17 percent.

Precious metals continued to exert an outsized influence on some categories. Silver jewellery inflation stood at 107.11 percent, while gold, diamond and platinum jewellery prices were 35.53 percent elevated than a year earlier.