India’s consumer price inflation rose to 4.82% in August from 4.45% in July, adding to pressure on the country’s central bank to raise key benchmark rates.
The headline inflation number was slightly above economists’ expectations for a 4.80% rise, according to a Reuters poll. Inflation has been on the rise for 10 straight months in the world’s fastest-growing economy, according to data from LSEG.
India’s food inflation climbed to 5.95% in August from 5.52% a month ago, India’s Ministry of Statistics and Program Implementation said in a Monday release. Goods transport service inflation rose the sharpest to over 14% in August, while personal transport inflation rose over 7%, the release said.
India is among the countries most vulnerable to the supply disruptions caused by the Iran war. It imports nearly 85% of its fuel needs and relies on the energy supply chain through the Strait of Hormuz. Global oil prices have soared past $100 a barrel and rose further on Monday after Saudi Arabia closed a key East-West energy pipeline following damage from a drone attack.
Despite rising food and fuel prices over the last several months, India’s economic growth for the June quarter was stronger than expected at 7.8%.
Global brokerages Morgan Stanley and Citi have raised their economic growth forecast for the 12 months ending in March 2027 to 7.3% from less than 7% earlier. However, economists do see the pace of growth slowing down in the second half of the year.
“Even as GDP growth has held up well thus far, some softening could be in order,” HSBC said in its report at the beginning of September. High base, cuts to public capex for meeting fiscal deficit targets and the impact of deficient rains on sowing patterns are some of the key reasons the brokerage expects India’s growth to slow over the next few quarters.
The Indian central bank has repeatedly emphasized its focus on core inflation, which is yet to become a major concern. But prolonged higher energy and food prices tend to increase core inflation through higher input, transportation, and operational costs.
The RBI expects headline inflation to be 5% in the financial year ending March 2027 and core inflation to be at 4.3%, as an expected El Niño weather pattern threatens food supplies and fuel prices rise due to the Iran war.
In August, India’s central bank kept benchmark interest rates unchanged, in contrast to many of its Asian peers that have hiked rates to tackle inflationary headwinds caused by the disruption to global energy supply chains.
