Retail inflation in August inched back above 2%, after hitting an eight-year low of 1.61% in July. The year-on-year Consumer Price Index (CPI)-based inflation stood at 2.07% in August 2025, compared with 3.65% a year ago.
Food inflation also rose, moving to -0.69% in August from -1.76% in July. The uptick in both headline and food inflation was mainly driven by higher prices of vegetables, fruits and cereals, which showed positive month-on-month inflation. However, on a year-on-year basis, vegetables, pulses and spices continued to record negative inflation, while cereals inflation moderated. Prices of edible oils and fruits showed an uptick.
The data also revealed a gap between rural and urban price trends. Rural headline inflation rose to 1.69% in August from 1.18% in July, while urban inflation increased to 2.47% from 2.10%. Food inflation followed a similar pattern, with rural inflation at -0.70% and urban at -0.58% in August.
Among categories, healthcare inflation rose 4.40%, education 3.60%, housing 3.09%, fuel and light 2.43%, and transport and communication 1.94% during the month.
Across major states with populations above 50 lakh, Kerala recorded the highest inflation at 9.04%. Other states with relatively high inflation included Karnataka (3.81%), Jammu and Kashmir (3.75%), Punjab (3.51%) and Tamil Nadu (2.93%).
Core inflation (excluding food and petroleum) remained unchanged at 4.2% in both July and August. “The rise in core goods inflation was due to higher gold prices, reflected in personal care and effects. Meanwhile, core services inflation moderated to 3.4% in August from 3.6% in July, led by softer inflation in education, transport, communication and healthcare services,” said Gaura Sen Gupta, Chief Economist, IDFC First Bank.
Retail inflation has remained below 4% so far in the current financial year, broadly in line with the Reserve Bank of India’s projection of 3.1% for FY26. Analysts also do not see any major near-term risks of price escalation, pointing to the recent GST rate cuts as a stabilising factor.
“Given the lower-than-expected food inflation and the expected easing of core inflation in the coming months due to the reduction in GST, we have revised our inflation forecast down to 3.2% from 3.5% for this fiscal,” said Dharmakirti Joshi, Chief Economist, Crisil.