India’s Retail Inflation Increases to 4.82% as Wholesale Inflation Reaches 9.92%

India’s retail inflation rose to 4.82% in August, up from 4.45% in July, according to data from the Ministry of Statistics and Programme Implementation. This marks the highest reading under the new Consumer Price Index (CPI) series, which began in January, and slightly exceeds the 4.80% forecast in a Reuters poll. Meanwhile, wholesale inflation approached double digits, climbing to 9.92% in August from 9.78% in July, as reported by the Ministry of Commerce and Industry.

Food Inflation Remains a Key Pressure Point

Retail food inflation, as measured by the Consumer Food Price Index (CFPI), increased to 5.95% in August, compared to 5.52% in July. Rural areas experienced higher food inflation at 6.13%, while urban food inflation was recorded at 5.64%. Overall CPI inflation was also greater in rural regions, standing at 5.23%, against 4.31% in urban areas. Among CPI categories, personal care and social protection services saw the highest inflation at 15.17%, followed by restaurants and accommodation services at 8.38%.

Food and beverages recorded inflation of 5.66%, while paan, tobacco, and intoxicants registered 4.71%. Transport inflation was at 4.60%, with education services at 3.73% and clothing and footwear at 3.56%. Health recorded the lowest inflation among tracked divisions at 1.34%. On the wholesale side, food inflation rose to 7.05% in August from 6.65% in July.

Wholesale Fuel Inflation Jumps Over 22%

Fuel and power significantly contributed to the rise in wholesale price index (WPI) inflation, which surged to 22.93% in August from 20.05% in July. The Ministry of Commerce and Industry identified mineral oils, food articles, manufactured food products, basic metals, non-food articles, and chemicals as major contributors to overall WPI inflation. Manufactured products inflation also reached a series high of 8.37% in August, up from 8.29% in July.

Barclays attributed the increase in fuel and power inflation to rising mineral oils, natural gas, and petroleum prices, driven by higher international energy costs.

What Economists Expect Next

The recent inflation uptick has raised concerns regarding monetary policy. Barclays noted that the rebound in global energy prices, particularly amid escalating tensions in West Asia, would likely exert upward pressure on WPI and producer prices. The firm no longer anticipates any significant moderation in upcoming inflation figures.

India Ratings and Research Chief Economist Devendra Pant indicated that the ongoing crisis in West Asia has reversed the previous two-month decline in fuel and power inflation, with elevated pressure expected to persist until the situation stabilizes. Ind-Ra forecasts wholesale inflation to reach 10.2% in September, remaining high throughout the year unless a resolution is found. ICRA’s principal economist Rahul Agrawal warned that food inflation could increase further in September and October due to unfavorable base effects and rising prices for certain food items, including sugar.

RBI Rate Outlook in Focus

The August CPI reading remains within the Reserve Bank of India’s 2-6% inflation tolerance band, but economists have differing views on potential rate hikes. ICRA Chief Economist Aditi Nayar suggested a rate hike could occur in December, especially if inflationary pressures expand and crude prices stay high. If crude prices remain elevated ahead of the October Monetary Policy Committee meeting, a hike could be anticipated sooner.

HDFC Bank’s principal economist Sakshi Gupta expects inflation to exceed 5% from October but believes the RBI may keep the policy rate unchanged in October, adopting a wait-and-watch approach. Anand Rathi Chief Economist Sujan Hajra stated that the current policy environment does not favor monetary easing, given strong economic growth and elevated inflation. He indicated that the repo rate is likely to remain steady for an extended period, with the prospect of a rate cut appearing remote.

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