More Stories

Informist, Tuesday, Aug. 25, 2026

 

NEW DELHI – The generalisation of higher inflation in India is seen at a much slower pace and only on a few items, despite retail inflation rising to a 19-month high of 4.45% in July. The headline inflation has been rising since the onset of the war in West Asia at the end of February, mainly on the back of higher prices of food, fuel, and personal care items.

 

The CPI inflation rose to 4.45% last month from 3.21% in February. The core inflation, which excludes food and fuel, was 3.9% in July. The core inflation also excluding precious metals was a mere 2.6%. These data indicate that "most of the inflation impulse still sits outside the underlying demand-sensitive prices," Aastha Gudwani and Amruta Ghare, economists at Barclays, said in a note.

 

The impact of the war is seen in the CPI basket, where 101 of the 358 items recorded inflation of over 4% on year as of July. The inflation of more than 4% was seen only in 76 items as of February. In the core CPI basket having 198 items, 178 reported inflation of less than 4% on year as of February. Among these 178 items, only 20 saw inflation higher than 4% as of July. This suggests that "the pace of generalisation is still very limited. The largest increases were seen in airfare, cooked meals & snacks, utensils & cigarettes," Gudwani and Ghare said.

 

Only 36 of the 198 items in the core CPI basket noted inflation at 4% last month. "The elevated inflation in these items is partly attributable to higher input costs, although other idiosyncratic factors are also driving it," they said.

Only 10% of the items in the core CPI basket reported inflation rates moving to more than 4% in July from below 4?fore the war began. These items include categories where the passing on of higher input costs and commodity prices was seen in the wake of the war, such as airfares, cooked meals, and steel utensils. They also include categories where price increases were administered, such as tobacco.

 

"The widening gap (between the headline inflation and core inflation) argues against current generalisation, which seems to be an emerging concern among the MPC (Monetary Policy Committee) members, as reflected in the minutes of the August policy," Gudwani and Ghare said. Even as the broadening of higher inflation was limited to specific sectors, persistence in the core CPI basket running higher than in headline CPI bears watching.

 

The Reserve Bank of India's Monetary Policy Committee, which met on Aug. 3-5, unanimously decided to keep the repo rate unchanged at 5.25?ter a detailed assessment of the evolving macroeconomic and financial developments and the outlook. The central bank has its inflation target of 4% for the medium term, with a tolerance band of 2-6%. On Jun. 5, RBI Governor Sanjay Malhotra had said it was not advisable to take action for every deviation from the 4% target. At the same time, he called the medium-term inflation target "sacrosanct" and said it is "not in abeyance".

 

Earlier this month, Malhotra had said the monetary response to a supply-side shock is warranted when there are signs of it leading to a generalisation of inflation, de-anchoring of inflation expectations, or persistent inflation. While risks remain, evidence of this so far is limited. "Although generalised inflation pressures continue to remain modest so far, the risks of higher food, fuel, and other input prices translating into a broad-based increase in inflation persist," Malhotra had said.

 

OUTLOOK

Looking ahead, the economists at Barclays see CPI inflation rising further while the magnitude of the increase in core CPI should be more moderate. "We see downside risks to the MPC's downwardly revised headline and core CPI inflation forecasts of 5.0% and 4.3%, respectively, for FY26-27 (Apr-Mar)," they said.

 

With this, economists at Barclays expect the Monetary Policy Committee to stay on hold through 2026 and hike the repo rate only from February. "The MPC may well choose to turn 'restrictive' on stance in December, paving the way for hikes in H1 2027," they said.  End

 

Reported by Shweta

Edited by Rajeev Pai

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2026. All rights reserved.