Key facts
- India's consumer price inflation is projected to reach 4.80% in August, a 20-month high.
- This figure is above the Reserve Bank of India's medium-term target of 4%.
- Higher food and fuel prices are the primary drivers of the expected inflation increase.
- The RBI is not expected to raise interest rates until next year.
- Wholesale price inflation is also forecast to rise to 9.89% in August.
India's consumer inflation is likely to have risen to a 20-month high in August, primarily driven by increased food and fuel prices, according to a Reuters poll of economists. The annual consumer price index (CPI) is forecast to reach 4.80%, up from 4.45% in July, marking the third consecutive month above the Reserve Bank of India's (RBI) 4% medium-term target. However, this is still within the RBI's 2%-6% tolerance band.
Factors contributing to the expected rise include an erratic monsoon disrupting food supplies, leading to higher prices for essentials like sugar, cereals, milk, edible oils, eggs, and meat. Global crude oil prices nearing $100 a barrel and increased cooking gas prices have also put upward pressure on inflation.
Sugar prices, in particular, hit a record high in August and are estimated to have added at least 15 basis points to headline inflation. India's ban on sugar exports, implemented in May to cool domestic prices, is expected to remain in effect until the end of September.
Core inflation, which excludes volatile food and fuel components, is anticipated to increase to 4.1% in August, indicating underlying demand pressures. Separately, wholesale price inflation is also projected to edge up to 9.89% in August from 9.78% in July, hovering around 10% for the fourth consecutive month.
Despite the rising inflation, the RBI held interest rates steady in its last meeting. Minutes from the meeting suggested a readiness to tighten policy if price pressures broaden, but rate hikes are not anticipated until next year. A separate Reuters poll indicated expectations of a 25 basis point rate hike in the second quarter of 2027, followed by another increase in the fourth quarter, bringing the policy rate to 5.75%.
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