India’s CPI Inflation Rises to 2.07% in August, First Uptick in 10 Months

India’s retail inflation rose to 2.07% in August 2025, up from 1.55% in July, and the first uptick in 10 months. Still, inflation remains below the Reserve Bank of India’s medium-term target of 4% for the seventh straight month. This boosts the case for a cut in repo rate after a pause by the central bank in August.

The rise in consumer price index inflation, largely in line with expectation, was mostly attributed to an increase in vegetable, meat and fish, oil and fats, eggs, and personal care categories. On a food price basis, CPI inflation stood at -0.69% in August compared to -1.76% in July. Rural food inflation was -0.70% and urban food inflation -0.58%, showing a narrower decline compared to the previous month.

Rural headline inflation rose to 1.69% from 1.18% in July, while urban inflation climbed to 2.47% from 2.10%. 

Policy implications of the CPI reading remain important. In August, the US raised tariffs on Indian imports by 25%, raising the total to as much as 50% in response to India’s Russian oil purchases. To counter potential trade-related drag, New Delhi announced broad-based cuts to the goods and services tax, effective from September 22, aimed at boosting domestic demand. Consumer goods and automobile companies have already begun adjusting prices downward.

According to Madhavi Arora, Chief Economist at Emkay Global Financial Services, the inflation undershoot compared with RBI’s projections is likely to persist through fiscal year 2025-26 , by at least 50 basis points. She added that the disinflationary bias could be reinforced by the recent GST rate cuts. Arora highlighted that the RBI’s focus on one-year-ahead inflation expectations may be less relevant given the shifting global environment, where Asia appears to be settling into a disinflationary phase.

She further noted that downside risks to growth may surface as global conditions reset and monetary easing resumes in advanced economies. This could create room for policy easing in India later in the year, even as the RBI’s Monetary Policy Committee appears cautious on further rate action.