India’s retail inflation rose marginally to 2.07 percent in August, breaking a 10-month cooling trend, as food inflation continued to be in negative territory for a third consecutive month.

Despite the uptick, inflation remained below 3 percent for the fourth straight month, rising from an eight-year low of 1.61 percent in July, according to data released on September 12. Economists indicate that the number is unlikely to deter the central bank to initiate another rate cut in its October policy announcement.

"The inflation number is more on expected lines and is unlikely to alter the RBI view on policy rates. Inflation was anyway to be benign going by RBI forecasts and the focus would be more on growth. Given the stable GDP path expected, we may expect status quo in rates and stance this policy," said Madan Sabnavis, chief economist, Bank of Baroda.

RBI's Monetary Policy Committee is scheduled to meet from September 29-October 1. It has already delivered 100 bps rate cut since the start of the year, bringing the rate down to 5.5 percent

"While the average CPI inflation for FY2026 is now likely to print around 2.6%, and October-November 2025 may mark a fresh low, the trajectory subsequently remains upward sloping. This, in conjunction with the stronger-than-expected GDP growth in Q1 FY2026, and the positive impact of the GST reforms on growth in the later quarters, suggest a status quo for the repo rate in the October 2025 policy review," said Aditi Nayar, chief economist, ICRA Ltd.

Food prices continued in deflationary territory, falling 0.69 percent in August compared with 1.76 percent in the previous month.

Cereals inflation declined further to a 44-month low of 2.7 percent, compared with 3.1 percent earlier. Vegetables and pulses remained in deflation for the seventh month running, at 15.9 percent and 14.5 percent, respectively, versus 20.7 percent and 13.8 percent in July, while oil inflation rose further to a four year high of 21.2 percent in August.

Mustard oil prices were up 24.2 percent, whereas refined oil prices were 23.5 percent higher. Coconut oil inflation was a whopping 133.1 percent.

By contrast, inflation in miscellaneous goods stayed elevated at 5.05 percent in August from 5 percent in the previous month, as gold prices were 40.3 percent higher from last year and silver was trending 31.8 percent up.

GST effect to be visible from coming months

However, prices in core goods, some food items like butter, ghee and services like beautician services are expected to come down in coming months. An earlier analysis by Moneycontrol had found that rationalisation of rates announced by GST Council on September 4 could bring down inflation by 100 bps or 1 percentage point in case of a full pass through.

"Going forward, we expect inflation to accelerate further in coming months, although the effects of GST rate cuts should lower the pace of acceleration from October onwards, keeping the headline inflation rate within or near the central bank’s 4% target range midpoint through the end of 2025," said Hanna Luchnikava-Schorsch, Head, Asia-Pacific Economics at S&P Global Market Intelligence.

Analysis shows that nearly 14 percent of the inflation basket is set to become cheaper as cuts become effective from September 22.

Economists expect inflation to average around 3.3 percent in the current fiscal.

"October-November 2025 may mark a fresh low, the trajectory subsequently remains upward sloping," Nayar from ICRA said.