GS3 – Economy
Context
Retail inflation in India rose to 2.1% in August 2025, ending a nine-month decline, primarily driven by the fuel and light category.
Key Highlights
- Headline Inflation: 2.1% (August 2025) vs. 1.55% (July 2025).
- RBI Comfort Band: 2% – 6%.
- Food & Beverages: Nearly flat at 0.05%.
- Vegetables: -15.9% (deflation).
- Pulses: -14.5% (deflation).
- Clothing & Footwear: Stable at 2.67%.
- Housing: Slight increase to 3.06%.
- Fuel & Light: Rose sharply to 2.9%.
- Oils & Fats: Inflation surged to 21.2% (high global prices + low base effect).
Detailed Insights
- The decline in retail inflation had continued since Nov 2024, reversed only in August 2025.
- The spike in fuel and oils offset the disinflation in food items.
- Base Effect: High price levels in the previous year magnify or suppress current inflation readings.
- Future Outlook:
- Possible GST rate cuts may ease inflationary pressures in FY 2026-27.
- RBI may consider 25–50 bps repo rate cuts from December 2025 if growth risks persist.