The Reserve Bank of India faces renewed pressure to tighten policy after retail inflation rose to 4.82% in August, marking a tenth consecutive monthly increase. The August figure edged up from July's 4.45% and sat marginally above economists' expectations of 4.80%, extending a steady climb in consumer prices that leaves the central bank balancing growth and price stability.
Food inflation accelerated to 5.95% from 5.52% a month earlier, the Ministry of Statistics and Program Implementation said, while costs tied to movement and motoring jumped sharply. Inflation in goods transport services topped 14% in August, and personal transport inflation rose above 7%, highlighting broadening price pressure across supply and distribution channels.
Energy costs are adding to the squeeze. India imports nearly 85% of its fuel needs and depends on flows through the Strait of Hormuz, making it vulnerable to disruptions from the Iran war. Global oil prices have moved past $100 a barrel and climbed further after Saudi Arabia shut a major East-West pipeline following damage from a drone attack, lifting the near-term risk to fuel bills and transport costs.
Despite the inflation rise, growth remained robust in the June quarter, with GDP expanding 7.8%. Global brokerages Morgan Stanley and Citi have responded by raising their forecasts for the 12 months ending March 2027 to 7.3% from less than 7% earlier. Still, some forecasters expect a slowdown later in the year, with HSBC warning, "Even as GDP growth has held up well thus far, some softening could be in order," citing a high base, cuts to public capex to meet fiscal deficit targets, and deficient rains that may affect sowing.
The RBI has emphasised its focus on core inflation, which remains less elevated, but acknowledges that sustained food and energy price gains can lift core through higher input, transportation and operational costs. The central bank expects headline inflation of 5% in the financial year ending March 2027 and core inflation of 4.3%. In August, the RBI kept benchmark interest rates unchanged while many Asian peers tightened policy, setting up a closer watch on incoming data and the outlook for fuel and food prices.
