NEW DELHI – India’s annual retail inflation rate rose slightly to 4.45% in July, up from 4.38% in June, according to government data released on Wednesday. This figure was largely in line with a Reuters poll that had predicted retail inflation at 4.50%.
Economists are closely monitoring the upward trend, anticipating further increases in the coming months. Alexandra Hermann Prasad, Lead Economist at Oxford Economics in London, commented on the situation, stating, “After today’s benign reading, India’s inflation upswing still has further to run.” She highlighted several factors contributing to this outlook, including an unpredictable monsoon season and elevated fertilizer costs, which are expected to push food prices higher. Additionally, companies are increasingly passing on rising input costs to consumers, and the favorable base effects from last September’s Goods and Services Tax (GST) reform are projected to diminish soon.
Prasad suggested that while the Reserve Bank of India (RBI) could afford to be patient for now, this may not last indefinitely. She warned that mounting evidence of second-round effects and rising medium-term inflation expectations would make it increasingly challenging to overlook the supply shock. Oxford Economics anticipates that policymakers will maintain current rates in October but foresee a 25 basis point rate hike in December.
Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank in Mumbai, echoed similar sentiments. She noted that the inflation figures were “in line with expectations” and emphasized the ongoing need to monitor rainfall patterns, reservoir levels, crude oil price trends, and the pass-through of higher input prices.
Bhardwaj indicated that while core inflation remains subdued for the time being, headline inflation is expected to climb above 5% starting from the third quarter of fiscal year 2027. Consequently, she believes there is still scope for a 50 basis point rate hike by the Monetary Policy Committee (MPC) in the second half of fiscal year 2027.
The report was compiled by Surbhi Misra and Nishit Bavin in Bengaluru, with additional editing by Chandini Monnappa and Mrigank Dhaniwala.
