India’s consumer price index (CPI) inflation rose to a 19-month high of 4.45% in July, but the headline print was only slightly higher than 4.38% registered in June and was in line with expectations, data released by the statistics ministry on Wednesday showed. July was the second consecutive month that retail inflation exceeded the Reserve Bank of India’s medium-term target of 4%.
The rise in retail inflation in July was driven by higher food prices but a sharp decline in gold and silver prices limited the overall impact on headline inflation. Core inflation, which excludes food and fuel, remained steady at 3.9% in July, suggesting limited generalisation of price pressures as yet.
Economists polled by FE had projected July CPI inflation at 4.5%. Higher food and fuel prices are expected to push inflation higher in the months ahead, with the headline print seen rising above 5% in September, economists said.
With inflation expected to rise and average around 5% in 2026-27, most economists expect the RBI’s Monetary Policy Committee (MPC) to raise interest rates either in December or in February.
In July, food inflation was the largest driver of headline inflation. Food inflation rose to 5.52% in July from 5.32% in June. This was driven by higher prices of meat, certain vegetables, spices and pulses.
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Sequentially, retail food prices rose 2.1% from June, the highest month-on-month rise in the current CPI series. The sequential increase in food prices pushed up the headline index by 0.9% month-on-month in July, similar to the rise seen in June and typical of summer months.
Eating out continued to become more expensive in July. Food and beverage serving services inflation rose to 7.75% in July from 6.94% in June. “Inflation in restaurants and accommodation services remained elevated as businesses continued to pass on higher input costs particularly food and energy costs to consumers with a lag,” said Rajani Sinha, chief economist at CareEdge Ratings.
Fuel inflation remained high in July, reflecting the impact of the fuel price hikes in May. Transport inflation rose to 4.43% in July from 4.31% in the previous month. Petrol inflation remained steady at 7.50%, and diesel inflation at 8.40%.
“The second order effects of higher input cost are likely to be visible in the coming months, as producers pass them to end consumer given that growth is holding up better than expected,” HDFC Bank economists said in a note. “Moreover, an unfavourable base effect in the coming months, along with increased volatility in food prices, tilts the balance of inflation risk to the upside.”
Aditi Nayar, chief economist, ICRA, said that CPI inflation is likely to rise to 4.7% in August, then cross the 5% mark in September and average 5% in FY27.
The RBI last week lowered the CPI inflation forecast for FY27 by 10 basis points to 5%.
“The RBI has signalled that it wants clearer evidence of generalisation and persistence before tightening. We think that a further rise in headline inflation and clearer signs of second-round effects, combined with increasing medium-term inflation expectations will make it harder for policymakers to look through the supply-driven shock,” said Alexandra Hermann Prasad, lead economist at Oxford Economics.
Acoording to Nayar, immediate policy tightening is unlikely but “evidence of a generalisation in inflationary pressures” in the next few months could lead to a repo rate hike in the December meeting. The MPC last week left the repo rate unchanged at 5.25%. Sinha wrote: “We do not expect any further rate hike by the RBI in FY27 under our base case. However, the possibility of a rate hike later in the year cannot be ruled out if inflationary pressures prove persistent.”
TOPICSECONOMYinflationThis article was first uploaded on August twelve, twenty twenty-six, at thirty-nine minutes past eight in the night. © IE Online Media Services (P) Ltd