India's inflation rises to 4.82% in August, marginally exceeding forecasts

In August, various price indicators increased, with household inflation surging to 4.82% from 4.45% in July, according to official figures released on Monday. This rise has shifted attention towards the Reserve Bank of India's (RBI) upcoming October 5-7 Monetary Policy Committee (MPC) meeting, which may see the first interest rate hike in three-and-a-half years.

Wholesale inflation also climbed to 9.92%, with producers' output prices standing at 9.81% higher compared to the previous year. The Consumer Price Index (CPI) inflation reached 4.82% in August, primarily due to food inflation spiking to 5.95%. This data was released three weeks ahead of the next MPC meeting, and minutes from last month's gathering had hinted at potential rate increases from Governor Sanjay Malhotra and Deputy Governor Poonam Gupta.

The RBI is legally required to maintain CPI inflation within a 4% range within the 2-6% band. However, this is the third consecutive month that headline retail inflation has exceeded the 4% mark. Despite expecting CPI inflation to average 4.7% in July-September, 5.9% in October-December, 5.5% in January-March 2027, and 5.3% in April-June 2027, economists have warned that the MPC must soon raise interest rates due to inflationary pressures.

While CPI inflation remains within the RBI's acceptable band, there are concerns that rising food and fuel prices may spread to other categories. On the same day as the household inflation report, the commerce ministry published Wholesale Price Index (WPI) data showing wholesale inflation rising to 9.92% from 9.78% in July. This surge was driven by elevated food and fuel prices.

Rahul Agrawal, Principal Economist at ICRA, noted that food inflation reached a 20-month high of 7.05% in August, mainly because of higher prices for fruits, vegetables, milk, spices, and sugar. The output Producer Price Index (PPI), released by the commerce ministry, rose to 9.81% from 9.57% in July, excluding indirect taxes and trade and transport margins.

The output PPI, which is expected to become the standard measure of inflation for producers by 2031, was used by MoSPI to adjust nominal GDP to real estimates. In contrast, the input PPI, released on a trial basis for the manufacturing sector, fell 1.6% month-on-month in August, mainly due to sharp declines in 'other manufacturing' and 'manufacture of coke and refined petroleum products'.

Markets are also anticipating a US Federal Reserve interest rate hike, with economists predicting a 25 basis point increase to 3.75-4% after consumer prices rose 0.4% month-on-month in August, and the year-on-year inflation rate remained at 3.4%.