Retail, wholesale inflation up in August; possibility of rate hike strengthens

With this, the possibility of a policy interest rate hike by the Monetary Policy Committee (MPC) next month has gained strength. | Photo Credit: iStockphoto

Government on Monday reported that both inflation rates – retail and wholesale – rose further in August to 4.8 per cent and 9.9 per cent respectively. With this, the possibility of a policy interest rate hike by Monetary Policy Committee (MPC) next month has gained strength.

Retail inflation is the highest in the current series, while wholesale inflation is second highest in the new series. Retail inflation was 4.4 per cent in July, while wholesale inflation was 9.8 per cent in the same month.

The pickup in retail inflation ran close ‌to ⁠or above 4 per cent in categories including clothing, household goods ⁠and education, while inflation in food-serving services rose to 8.4 per cent from 7.7 per cent in July. Food inflation climbed to 5.95 per cent in August from ⁠5.52 per cent in July on the back of weak monsoon showers, with sharp increases in prices of staples ‌such as ginger, onion and garlic. Transport inflation accelerated to 4.6 per cent in August from 4.4 per cent in the previous ​month, according to CPI data released by the National Statistics Office (NSO).

“Headline inflation came in line with our expectations. We expect the 2QFY27 average inflation to be about 20bp higher than RBI’s estimate of 4.7 per cent. Overall, given RBI’s measures in withdrawing durable liquidity along with adverse global conditions we continue to see scope for 50-75bp of rate hikes by the MPC, with now the odds of an action in October increasing significantly,” she said.

RBI’s Monetary Policy Committee recently kept key short-term policy rates unchanged amid inflation worries. RBI’s official mandate is to keep inflation within the acceptable range of 2 per cent to 6 per cent.

“Across groups, mineral oils (containing petroleum products), food articles, manufacture of food products, manufacture of basic metals, non-food articles, and manufacture of chemicals and chemical products have been major drivers of WPI inflation in August 2026,” the Commerce and Industry Ministry said while releasing the WPI data.

In August, food inflation rose to 7.05 per cent from 6.65 per cent in July. In manufactured items, WPI inflation stood at a series high of 8.37 per cent compared to 8.29 per cent in July. In the fuel and power basket, wholesale price index (WPI)-based inflation was 22.93 per cent in August against 20.05 per cent in July.

Devendra Pant, Chief Economist at India Ratings & Research expects wholesale inflation to be in double digit in September. “No significant impact of deficient rainfall on food prices till August 2026, adverse base effect is pushing food inflation higher,” he said while adding that prolonged West Asia crisis has reversed two months’ declining trend of fuel and power inflation and is likely to remain elevated until the solution of crisis

Double digit inflation in seven manufacturing sectors – tobacco products, textiles products, chemical products, rubber & plastic products, base metals, electrical equipment and other manufacturing pushed manufactured inflation to all-time high (in new series).

While supply chain disruption had minimal impact on India’s 1QFY27 GDP growth, it has significantly impacted inflation. With West Asia crisis remained unresolved (like Russia-Ukraine), global uncertainty is likely to remain elevated in near-term. “This, along with deficient rain and weaker currency, would continue to push inflation higher in near-term. Ind-Ra expects wholesale inflation to increase to 10.2% in September 2026 and likely to remain elevated in rest of 2026, unless a permanent solution to West Asia crisis is achieved,” Pant said.

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