Market Update: Retail inflation quickens to 2.1% in August, snaps 9-month falling streak – Full Analysis

Retail inflation broke a nine-month declining streak in August 2025, quickening to 2.1% from 1.6% in July 2025, according to official data. The inflation in August was marginally higher than the lower bound of the Reserve Bank of India’s comfort band of 2-6% for retail inflation. 

The rate of retail inflation had been declining every month since November 2024.

The data released by the Ministry of Statistics and Programme Implementation on Friday (September 12, 2025) showed that the inflation in the food and beverages category remained flat in August 2025, at 0.05%, compared to 5.3% in August last year.

“Within food products, the main drivers of low inflation are vegetables and pulses which recorded -15.9% and -14.5% respectively,” according to a note by the Bank of Baroda’s economics research wing. “Oils continue to exert upward pressure with 21.2% inflation due to higher global prices as well as low base effect.”

Inflation in the clothing and footwear category remained virtually unchanged at 2.67% in August 2025 compared with 2.62% in July. Similarly, inflation in the housing segment stood at 3.06% in August compared with 3.03% in July.

The fuel and light category saw a relatively faster increase in inflation, which quickened to 2.9% in August 2025 from 1.4% in July. 

According to Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, the the GST rate cut impact is likely to play out in the year ahead, partly offsetting the impact of an adverse base effect in 2026-27. 

“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 and the Fed moves ahead with aggressive rate cuts,” she said.