India’s inflation rises to 2.07% in August, in line with expectations
Customers browsing through goods at a store on the outskirts of New Delhi, India, in February as prices continue to rise, with inflation figures for March nearing 7%.
Anindito Mukherjee/Bloomberg via Getty Images | Bloomberg | Bloomberg | Getty Images
India’s consumer inflation rose to 2.07% in August, following nine consecutive months of easing, according to government data released on Friday. The increase was in line with analyst expectations.
The uptick in August inflation was primarily driven by higher prices of vegetables, meat and fish, oil and fats, personal care products, and eggs, as stated by the government.
Economists surveyed by Reuters had forecast a year-on-year headline inflation rate of 2.1% for August, after July’s inflation rate touched 1.55% — the lowest since June 2017 — due to a decline in food inflation.
Despite the rise in August, India’s inflation remains close to the Reserve Bank of India’s target range of 2% to 6%. The central bank had projected a CPI growth of 3.1% for the fiscal year ending March 2026.
The benign inflation environment gives the central bank flexibility to ease monetary policy and mitigate the impact of U.S. tariffs on India’s economic growth.
In August, the U.S. imposed an additional 25% tariff on Indian imports over New Delhi’s purchases of Russian oil, resulting in total duties reaching up to 50%, among the highest tariffs imposed by the U.S. on any trading partner.
It is estimated that the tariffs could reduce India’s annual GDP growth rate by 0.6% for the fiscal year, according to a report by Goldman Sachs.
To boost domestic consumption and counter the export decline, the government announced significant cuts to the goods and services tax on September 3. Fast-moving consumer goods, automobiles, and agricultural products are expected to become cheaper once the cuts take effect on September 22.
Economists at Citi forecast that Indian households’ spending power will improve by 0.7% to 0.8% of GDP by the end of the fiscal year in March 2026. They also anticipate that the GST cuts could reduce inflation by 1.1 percentage points if the full tax cut benefits are passed on to consumers.
Leading automobile companies like Tata Motors and Maruti Suzuki have already announced price cuts, passing on the benefits of the tax reductions to customers. Similarly, consumer goods companies such as Hindustan Unilever, Colgate-Palmolive, and Mars Wrigley are reportedly planning to reduce prices.
In the previous month, India’s economy grew faster than expected at an annual rate of 7.8% in the April-June quarter, driven by growth in manufacturing, construction, and services sectors. Despite signs of nominal growth slowing down, economists believe that the low inflation levels have contributed to a stronger growth rate.
