Tuesday, 16 Sep, 2025
Analysts suggest the narrowing of the food price contraction points to firming demand alongside a seasonal adjustment in supply chains. Image Source: IANS
Prices in the food basket contracted by 0.69 percent in August, compared to a sharper 1.76 percent decline in July.
India’s retail inflation inched up in August 2025 but continued to remain comfortably within the Reserve Bank of India’s (RBI) target band of 2–6 percent. Data released on headline Consumer Price Index (CPI) inflation showed that prices rose 2.07 percent year-on-year, compared with 1.61 percent in July. The modest increase was largely attributed to firmer prices of vegetables, meat and fish, edible oils, personal care items and eggs, which offset continuing declines in some categories of food.
Notably, food inflation, which has been in negative territory for three straight months, showed signs of stabilisation. Prices in the food basket contracted by 0.69 percent in August, compared to a sharper 1.76 percent decline in July. The recovery was visible in both rural and urban areas. Rural inflation ticked up to 1.69 percent from 1.18 percent in the previous month, with rural food inflation improving to -0.70 percent against -1.74 percent in July. In cities, headline inflation rose to 2.47 percent in August from 2.10 percent in July, while urban food inflation was at -0.58 percent versus -1.90 percent earlier. Analysts suggest the narrowing of the food price contraction points to firming demand alongside a seasonal adjustment in supply chains.
Source: Ministry of Statistics and Programme Implementation
Adding to the domestic inflation dynamics, external developments have posed fresh challenges. Washington imposed an additional 25 percent tariff on Indian imports in August, citing New Delhi’s continued purchases of discounted Russian crude oil. This brings the cumulative tariff burden on certain Indian goods to as high as 50 percent, among the highest faced by any of the United States’ major trading partners. Trade economists warn that such steep duties could weigh heavily on India’s export competitiveness in the American market, particularly in sectors like steel, chemicals, textiles, and engineering goods.
A report by Goldman Sachs estimated that the tariffs could trim India’s GDP growth by around 0.6 percentage points in the current fiscal year, underscoring the potential macroeconomic fallout. With exports likely to come under pressure, the government has pivoted towards stimulating domestic demand to cushion the economy. On September 3, the Centre unveiled sweeping reductions in the goods and services tax (GST), with the changes scheduled to take effect from September 22.
The GST cuts are expected to directly lower prices of fast-moving consumer goods, automobiles, and agricultural products categories with a high multiplier effect on household spending and rural demand. Industry groups have welcomed the move, noting that lower effective tax rates could boost sales volumes during the upcoming festive season, helping sustain economic momentum despite external headwinds. Policymakers are banking on stronger private consumption to offset the drag from exports, while keeping inflation within manageable limits.
With inflation under control, growth pressures mounting, and major central banks such as the U.S. Federal Reserve preparing to lower rates, economists believe the Reserve Bank of India has scope to ease monetary policy further this year. Upasna Bhardwaj, economist at Kotak Mahindra Bank, said, “While we see a pause by the RBI in the upcoming policy, we do see some scope for rate cuts worth 25-50 basis points opening up from December policy if downside risks to growth materialise.”
Inflation trends across sectors showed a mixed picture in August. Housing prices increased by 3.09 percent, slightly below July’s 3.17 percent. Education costs moderated to 3.60 percent from 4.11 percent a month earlier, while health inflation eased to 4.40 percent compared to 4.57 percent in July. Transport and communication inflation slowed to 1.94 percent from 2.12 percent, and fuel and light also saw a milder rise at 2.43 percent, down from 2.67 percent in the previous month.
