From 1.55% to 2.07%: India’s Inflation Rebounds, RBI Sees 3.1% CPI in FY26, 8 Points

1. Headline Inflation Trend

• India’s Consumer Price Index (CPI) inflation rose to 2.07% in August 2025.

• This marks the first rise after 9 months of decline.

• Still within the RBI’s target band of 2%–6%.

2. Key Inflation Drivers

• Inflation rise mainly due to:

  • Vegetables, meat & fish

  • Oils & fats

  • Eggs & personal care products

• Food inflation: -0.69% YoY (vs. -1.76% in July).

3. Market Expectations & RBI Forecast

• Reuters poll median estimate: 2.1% inflation, matching actual data.

• RBI projects CPI inflation at 3.1% for FY25-26.

• S&P expects average 3.3% inflation for the fiscal year.

4. Monetary Policy Implications

• Low inflation allows RBI scope for rate cuts / policy easing.

• Could cushion against growth slowdown due to US tariffs.

5. Global Trade & Tariff Impact

• US imposed 25% additional tariff on Indian imports linked to Russian oil.

• Effective duties now up to 50%, among the highest globally.

• Goldman Sachs estimates: -0.6 percentage points GDP hit in FY26.

6. Government’s GST Cuts (Sept 2025)

• GST reduced on FMCG, automobiles, farm products.

• Effective from Sept 22, 2025.

• Expected GDP impact:

  • +0.7%–0.8% of GDP via higher household spending (Citi estimate).

  • -1.1 percentage point on inflation if full pass-through occurs.

7. Corporate Pricing Response

• Automakers like Tata Motors, Maruti Suzuki cut prices.

• FMCG majors (Hindustan Unilever, Colgate, Mars Wrigley) plan consumer price cuts.

8. Growth Snapshot (Q1 FY26)

• GDP growth: 7.8% (Apr–Jun 2025), beating estimates.

• Boosted by manufacturing, construction & services.

• Economists note: low inflation made real growth appear stronger.