India’s inflation risks rise as food and fuel costs push prices higher in August

India’s consumer inflation increased in August beyond expectations, driven by rising food and fuel prices, signalling growing inflationary pressures despite a cautious stance from the Reserve Bank of India.

India’s consumer inflation accelerated in August, with the official data showing a sharper rise than economists had expected in a Reuters poll that pointed to a 20-month high. The increase was driven largely by food and fuel costs, even as broader price pressures remained relatively contained.

Government figures showed consumer price inflation rose to 2.07% year on year in August from 1.61% in July, ending a nine-month decline. Food inflation remained negative at -0.69%, but that was a smaller fall than the month before, reflecting firmer prices for tomatoes, eggs, meat and fish, according to market reports on the data. Reuters polling had suggested a much faster annual pace of 4.80%, which would have taken inflation well above the Reserve Bank of India’s 4% target.

Wholesale prices also turned higher. India’s wholesale price inflation rose to 0.52% in August from -0.58% in July, reaching a four-month high as food and manufactured goods became more expensive. Business Standard reported that the move was helped by higher prices for food products, non-food articles, mineral products and transport equipment, while fuel and power remained a drag on the index.

The data suggest inflationary pressure is building, but not yet at a level that would force immediate policy action. Core inflation, which strips out food and fuel, was seen edging up to about 4.1% in the Reuters poll, a sign that underlying demand may be firming. Even so, the Reserve Bank of India has so far been more focused on supporting growth, and economists do not expect a near-term rate rise unless price gains become broader and more persistent.