India’s consumer price inflation rate rose to 4.82% in August from 4.45% in July, increasing pressure on the country’s central bank to raise its key benchmark interest rate.
The headline inflation rate was slightly higher than the 4.80% rise expected by economists, according to a Reuters poll. Inflation has risen for the 10th straight month in the world’s fastest growing economy, according to LSEG data.
India’s food inflation rate rose to 5.95% in August from 5.52% in the previous month, the Ministry of Statistics and Planning Implementation said in a statement on Monday. Inflation in goods transport services rose the most sharply in August, at more than 14%, while inflation in personal transport rose by more than 7%, the statement said.
India is one of the countries most vulnerable to supply disruptions caused by the Iran war. It imports almost 85% of its fuel needs and relies on an energy supply chain that passes through the Strait of Hormuz. Global oil prices soared above $100 a barrel and rose further on Monday after Saudi Arabia shut down a major East-West energy pipeline following damage from a drone attack.
Despite rising food and fuel prices over the past few months, India’s economy grew by a better-than-expected 7.8% in the June quarter.
Global brokerages Morgan Stanley and Citi have raised their economic growth forecast for the 12 months to March 2027 to 7.3% from less than 7%. However, economists expect the pace of growth to slow in the second half of this year.
HSBC said in a report in early September that “GDP growth has remained strong so far, but may slow to some extent.” High standards, cuts in public capital spending to meet fiscal deficit targets and lack of rain impacting sowing patterns are some of the key reasons why brokerages expect India’s growth to slow over the coming quarters.
Although the central bank of India has repeatedly emphasized its focus on core inflation, core inflation is not yet a major concern. However, prolonged high energy and food prices tend to increase input, transportation, and operating costs, leading to higher core inflation.
The central bank expects headline inflation to be 5% and core inflation to be 4.3% in the fiscal year ending March 2027, as predicted El Niño weather patterns threaten food supplies and concerns about rising fuel prices due to the Iran war.
India’s central bank kept its benchmark interest rate unchanged in August, in contrast to many of its Asian peers, which have raised interest rates to combat inflationary headwinds from disruptions to global energy supply chains.
