August inflation above 2pc dents hopes of October rate cut: SBI Research

NEW DELHI : With August inflation slightly above the 2 per cent mark, hopes for a rate cut in October have dimmed, said SBI Research in its latest report.

The report added that the rate cut in December also appears uncertain, especially when weighed against the stronger-than-expected growth estimates for the first two quarters of the fiscal year.

“With August inflation print a tad higher than the 2 per cent mark, a rate cut in October looks onerous. Even a rate cut in December looks a little difficult if growth numbers for Q1 and Q2 (estimates) are taken into consideration,” the report added.

The report added that changes in GST rates on services could reduce inflation on non-food items by another 40-45 basis points, based on a 50 per cent pass-through.

The government has reduced GST rates on many essential items (about 295 in total), bringing them down from 12 per cent to 5 per cent or even zero. This tax cut could lower inflation in these items by 25-30 basis points in FY26, assuming a 60 per cent pass-through to consumers, SBI Ecowrap added.

After dropping to a 98-month low of 1.55 per cent in July 2025, India’s retail inflation (CPI) rose slightly to 2.07 per cent in August, mainly due to higher food and beverage prices. Core inflation (which excludes food and fuel) also went up to 4.16 per cent.

Both rural and urban areas saw a rise — rural inflation increased to 1.69 per cent (from 1.18 per cent in July), and urban inflation rose to 2.47 per cent (from 2.10 per cent).

This rise was partly due to the “base effect” wearing off, meaning current price increases are no longer being compared against very high prices from the previous year. Now, the actual increase in prices is showing up more clearly.

Out of 35 states and union territories, 26 had inflation below 4 per cent in August. Only Kerala and Lakshadweep reported inflation above 6 per cent. Interestingly, Kerala stood out as an outlier with inflation hitting 9.04 per cent, driven by a sharp rise in coconut oil prices — a staple in the state. In Kerala, rural inflation touched 10.05 per cent and urban inflation reached 7.19 per cent.

On the weather front, heavy rainfall in key farming states like Punjab, Haryana, Rajasthan, and Gujarat may impact food supply and push up food prices in the coming months. Rainfall between August and early September was nearly 9 per cent above normal across India, with some states seeing much higher levels. (ANI)