India’s retail inflation rises to 2.07% as food prices ease

India’s retail inflation ticked up to 2.07% in August 2025, ending a nine-month decline that began in November 2024, signaling a subtle shift in the country’s economic landscape. This modest rise, reported by the Ministry of Statistics and Programme Implementation, places inflation comfortably within the Reserve Bank of India’s (RBI) 2-6% target range, reflecting a delicate balance between price stability and emerging pressures. Driven by factors like elevated global commodity prices and base effects, this uptick offers insights into India’s ongoing recovery while raising questions about future monetary policy directions.

Food and beverage inflation stayed nearly flat at 0.05% in August, a significant drop from 5.3% a year earlier, primarily due to sharp deflation in vegetables (-15.9%) and pulses (-14.5%). These trends, supported by robust domestic supply and favorable harvests, have been crucial in keeping overall inflation subdued. However, edible oils recorded a 21.2% inflation rate, driven by higher global commodity prices and a low base effect, highlighting contrasting pressures within the food category.

Beyond food, other segments showed stability with slight variations. Inflation in clothing and footwear inched up to 2.67% from 2.62% in July, while housing inflation rose marginally to 3.06% from 3.03%. The fuel and light category saw a more pronounced rise, climbing to 2.9% from 1.4%, likely reflecting volatility in energy markets. Rural inflation, at 1.69% compared to 1.18% in July, mirrored urban trends, indicating broad-based price movements across regions.

The modest inflation rise is considered manageable by analysts. Recent GST rate cuts are expected to mitigate base effect challenges in 2026-27, potentially easing future inflationary pressures. A policy pause by the RBI is anticipated in the near term, with possible 25-50 basis point rate cuts from December if growth concerns arise and global monetary policies, particularly from the U.S. Federal Reserve, shift toward easing. Research highlights edible oils as a primary inflationary driver, while low food prices continue to stabilize the headline rate.

Wholesale inflation, meanwhile, climbed to 0.52% in August, driven by sectors like crude petroleum, though deflation persisted elsewhere, reflecting uneven recovery patterns. With food prices expected to remain subdued, inflation is likely to stay below the RBI’s 4% midpoint, fostering economic stability. Continued monitoring of global commodity prices and monsoon impacts will be critical to sustaining this balance. As India navigates these challenges, its ability to maintain low inflation while supporting growth positions it well for a steady economic trajectory.