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Informist, Thursday, Aug. 13, 2026

By Shweta

NEW DELHI – Retail inflation in India has steadied in July, but the outlook for the coming months seems cloudy with persistent pressure stemming from higher food prices. The growth in prices of food items is mainly due to prices of protein products, vegetables, and cereals, economists said. The evolving El Nino conditions will also weigh on headline inflation, they said. Consumers can also expect manufacturers to pass on their higher input costs as higher raw material prices have not yet been fully transmitted.

Higher edible oil prices and the fading impact of the cut in goods and services tax are also expected to push retail inflation higher in the coming months, according to Dipti Deshpande, principal economist at Crisil.

Economists see retail inflation rising to 4.5–4.7% in August. "Uneven monsoon conditions continue to cloud the food inflation outlook.... Rainfall patterns in August will be a key monitorable, as deficient precipitation could affect planted crops and constrain yields," Deshpande said in a note Wednesday.

CPI inflation rose to a 19-month high of 4.45% in July, marking the ninth consecutive month of a rise. The July print was also the second month when inflation remained above the Reserve Bank of India's medium-term target of 4%.

"So far so good, because the first four months are giving you that kind of comfort that inflation is not rising as much despite this kind of adverse global trade," Radhika Piplani, chief economist at Motilal Oswal Financial Services, said. "But over the next few months, you will end up seeing prints higher than these, which is why we are still expecting that the inflation will continue to remain close to 5.1% for the year as a whole."

The retail inflation is estimated to rise in the next few months primarily due to higher food prices, especially in proteins and vegetables. "We are seeing that inflation can touch the 5.5% kind of print over the next three to four months," Piplani said, adding that there is some bit of seasonality as well as the impact of the evolving El Nino phenomenon.

India has seen an improvement in monsoon rainfall since July, with the cumulative rainfall deficit narrowing to 12% below normal. However, the spatial distribution remains uneven, with only 58% of the country receiving normal rainfall. Despite this, kharif sowing is only marginally lower than a year ago. Now, "a lot depends on how your rabi (sowing) picks up, because kharif so far looks to be well in control," Piplani said. Rural inflation, which is more likely to be driven by food, will continue to be very high, she added.

Headline inflation is expected to remain in the band of 4.6–5.8% over the next three quarters, primarily on account of prevailing El Nino conditions and an unfavourable base effect, which are expected to exert upward pressure on food prices, particularly pulses, oilseeds, and vegetables, economists at IDBI Bank said in a note.

Core inflation, which excludes food and fuel, was stable at 3.9% in July. Stable core inflation since May suggests the absence of a demand push towards inflation, Megha Arora, director at India Ratings and Research, said in a note. Core inflation may undershoot the Reserve Bank of India's forecast of 4.3% for the financial year 2026-27 (Apr-Mar).

Some economists also expect core inflation to face upside risks due to a second-round impact in the wake of the war in West Asia. On the positive side, lower prices of precious metals will provide some room for inflation to moderate, according to Aditi Gupta, economist at Bank of Baroda.

Core inflation excluding not only food and fuel but also precious metals is expected to average around 3% in FY27, inching up towards 4% by March, according to Gaura Sengupta, chief economist at IDFC FIRST Bank.

On Aug. 5, the Reserve Bank of India trimmed its headline inflation outlook for FY27 by 10 basis points to 5.0% even as uncertainties over the El Nino weather pattern and the war in West Asia continue to linger. Volatile crude oil prices and their second-round effects continue to pose downside risks, RBI Governor Sanjay Malhotra noted in his monetary policy announcement. He added that inflation is seen rising in the near term. The central bank also cut its inflation forecast for Jul-Sept by 40 bps to 4.7%.

The RBI iterated that headline inflation is expected to rise further in the near term and peak in Oct-Dec, primarily due to food and fuel, and moderate thereafter. The underlying inflation is likely to align with core inflation towards the end of the financial year, Malhotra said.

WAR WOES

The resurfacing of tensions between the US and Iran has resulted in higher crude oil prices after they had fallen to the pre-war level of around $72 per barrel. However, economists say this is unlikely to affect inflation anytime soon. "The impact on CPI inflation will remain limited, as no further increase is expected in retail petrol and diesel prices," Sengupta said in a note.

India has been facing higher price pressure since the outbreak of the war on Feb. 28. Brent crude oil price had soared to a high of $122.53 per barrel after the war broke out, and it was only last month that prices retreated to pre-war levels after peace talks began. However, the recent resumption of hostilities in West Asia has again created uncertainty about crude oil prices and inflation. Crude oil prices are currently around $88 per barrel.

"A critical risk for oil prices remains in the form of tariff threats to countries importing oil from Russia--a diversion of this demand to the rest of the world's oil supplies could lead to a rise in crude prices," economists at YES Bank said in a note.

Further, the supply chain disruptions caused by the war could keep global commodity prices higher, which will ultimately push core inflation higher, Gupta said in the note. Economists expect Brent crude oil price to hover around $80–$85 per barrel for the next few weeks.

POLICY OUTLOOK

The lower-than-projected inflation of 3.93% for the June quarter has provided some cushion to the RBI's Monetary Policy Committee for the September quarter. However, the RBI will be closely monitoring the second half of FY27. "It (lower Q1 average) gives the RBI a window. It will most likely be H2, which is where the RBI has to be careful in terms of reading inflation rates because there the base is very small. So you do not know how things really end up being," Piplani said.

In the near term, economists do not see the Monetary Policy Committee raising the repo rate, especially in October. "While the probability of a rate hike is not zero, the bar for one may be high as the RBI balances its growth-inflation objectives," economists at YES Bank said. Overall, economists anticipate the RBI to remain watchful of price developments, especially its second-round impact.  End

Edited by Rajeev Pai

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