India’s retail inflation rose to 2.07% in August, up from an eight-year low of 1.55% in July, as per government data. The increase was driven by the fading impact of high base effects, which had kept inflation at historically low levels in recent months. Additionally, a rise in food prices, which constitute nearly half of the Consumer Price Index (CPI) basket, contributed to the uptick. Despite the increase, August marked the seventh consecutive month that inflation remained below the Reserve Bank of India’s (RBI) 4% medium-term target.
Food inflation, which makes up nearly half of the Consumer Price Index (CPI) basket, rose to -0.69% in August from -1.76% in July.
The RBI’s Monetary Policy Committee (MPC) noted last month that inflation is likely to accelerate in the last quarter of FY26, particularly due to the volatility in vegetable prices and other food items.
While geopolitical tensions have eased, the central bank highlighted that global trade pressures, including incoming tariffs, continue to influence inflationary trends.
For FY26, the RBI now projects headline inflation at 3.1%, down from the 3.7% forecast in June. However, inflation is expected to breach the 4% target in the first quarter of FY27, with the CPI projected at 4.9%.
The central bank’s quarterly estimates are:
Q2 FY26: 2.1%
Q3 FY26: 3.1%
Q4 FY26: 4.4%
The RBI emphasized that risks to the inflation outlook remain “evenly balanced.” Meanwhile, core inflation, which excludes food and fuel prices, has remained stable at 4%, suggesting underlying price pressures are contained.
