India’s retail inflation rose to 4.8% in August, oil fuels rate hike bets
India’s retail and wholesale inflation rose marginally in August, broadly in line with expectations, but recent developments in energy markets could put further upward pressure on inflation in the months ahead.
Retail and wholesale inflation rose to 4.8% and 9.9%, respectively, in August, from 4.5% and 9.8% in July. The two measures, based on the Consumer Price Index (CPI) and Wholesale Price Index (WPI), can move quite differently because the underlying dynamics in retail and wholesale markets are different, but also because the two indices have very different compositions.
Also read: Retail inflation rises to 4.82% in August from 4.45% in July
Retail inflation remains within RBI tolerance band
Retail inflation increased marginally to 4.8% in August from 4.5% in July, according to data released by the National Statistics Office on Monday. The August value was almost identical to a Bloomberg forecast of economists and continues to be within the RBI’s tolerance band of 2-6%. Unless there is a big spike in the September CPI print, inflation in the quarter ending September should not vary significantly from the Monetary Policy Committee’s August forecast of 4.7%.
The primary driver of retail inflation, which has increased for nine consecutive months now, continues to be its non-core or food-fuel component. While non-core inflation increased from 1.9% in January 2026 to 5.6% in August, its core component increased at a more gradual pace, rising from 3.3% to 4.3% during this period. Food and beverage component, which has the highest weight of around 37% in the index, increased to 5.7% from 5.3% in July.
Also read: Rates for tankers to India rise by 150 percent as West Asia crisis escalates
Wholesale inflation climbs on fuel and manufactured products
WPI inflation rose to 9.9% in August according to data released by the Ministry of Commerce and Industry on Monday. Among the three broad categories of WPI, inflation increased in two (manufactured products and fuel and power) and fell in the primary articles group. Fuel and power group saw inflation increase to 22.9% from 20.1% and manufactured products’ inflation increased from 8.3% to 8.4%. Food inflation under WPI increased from 6.7% to 7.1% between July and August.
Output PPI, which measures prices received by producers after excluding net taxes and trade and transport margins, registered year-on-year inflation of 9.8% in August, marginally up from 9.6% in July.
Also read: India retail inflation holds steady at 4.45% in July despite stress over rise in food, fuel prices
Oil price raises concerns over future inflation
While the latest inflation numbers are largely on expected lines, more recent developments suggest they could rise going forward and monetary policy may need to pivot toward being more hawkish. Thanks to Iran-backed rebels seizing key territories near the Bab Al-Mandab strait and damaging a pipeline, oil shipments from Saudi Arabia are likely to fall significantly going forward. International benchmark price of crude oil crossed the $100 per barrel threshold earlier this month and was trading at $108.76 (as of 18:56 IST) on Monday. India’s crude oil basket price was $119 per barrel on 11 September.
Most analysts expect energy prices to rise significantly unless there is a resolution to the ongoing conflict in West Asia which restores normal traffic through Hormuz and Bab-Al-Mandab. Fuel prices in India are deregulated on paper, government-run retailers have not increased prices in 123 days (the last hike was on 15th May).
SBI economist calls for two rate hikes
“Now we strongly advocate a 25-bps rate hike in the upcoming October policy (followed by another in December in quick succession), factoring the myriad evolving undershoots as detailed in this report. Out rate hike call is agnostic to August CPI inflation print that could come around 4.8-4.9%. If oil prices remain at high levels, inflation print for October and November should move towards 6.5% or higher,” Soumya Kanti Ghosh, Chief Economist at State Bank of India, had said in a note issued on 11 September.
“We project CPI inflation to peak in Q3 FY27 and average around 5.0% in FY27. On the monetary policy front, the MPC is likely to remain data-dependent, with its stance guided by evolving growth-inflation dynamics. A sustained uptick in inflation could strengthen the case for a rate hike in the coming months. The October RBI policy decision will be crucial to watch, especially as some major central banks have already embarked on a rate-hiking cycle”, Rajni Sinha, Chief Economist at Care Ratings, said in a note.
“We expect the RBI to hike policy rates by 25bps each in the October and December policy meetings, taking the repo rate to 5.75%,” said Pranjul Bhandari, Chief India Economist at HSBC.
Source: www.hindustantimes.com