Inflation and Economic Outlook in India - August 2025

In August 2025, the retail inflation rate in India experienced a slight rise to 2.1%, ending a nine-month trend of decline, but it remains within the Reserve Bank of India's (RBI) comfort band of 2%-6%. This indicates no significant macroeconomic risk at present.

Food Inflation

• The government is pleased with subdued food inflation levels in both urban and rural areas.
• Notably, there is a significant decrease in the prices of vegetables and pulses, contracted by 15.9% and 14.5% respectively.
• The provision of free food grains under the National Food Security Act supports affordability in food supplies.

Inflation in Other Necessities

• Low inflation rates are observed in sectors like clothing and footwear, housing, and fuel and light, with August rates lower than those in July.

Macroeconomic Scenario

India's current macroeconomic scenario shows a reversal from last year's trend, moving from low growth and high inflation to high growth and low inflation.

• The growth-inflation differential has widened to 5.5 percentage points compared to last year's 2.1 percentage points.
• While data accuracy on GDP and inflation is questioned, the comparability between the two years remains unaffected.

Future Inflation Outlook

The outlook for inflation appears stable, with several factors to consider:

• If India ceases purchasing Russian oil due to U.S. demands, the economic impact is expected to be minimal, given low global crude prices and moderate cost increases from sourcing oil elsewhere.
• The introduction of new GST rates from September 22 is anticipated to lower most prices, further decreasing the inflation rate.

Interest Rates and Economic Policies

With low inflation and high growth in Q1, there is speculation that the RBI’s Monetary Policy Committee might cut interest rates in its upcoming meeting at the end of September.

• However, due to ongoing global uncertainties, a rate cut might be more feasible in December, contingent on the evolving diplomatic relations between India and the U.S.