Will Inflation Stabilize at 2% in August as Food Prices Decline?
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Synopsis
Could inflation really settle at 2% this August? A Bank of Baroda report suggests it might, thanks to cooling food prices. Dive into the details as we explore the factors driving this change.
Key Takeaways
- Projected CPI: Expected to stabilize at 2% in August.
- ECI Trends: Entering deflation for the fourth month.
- Key Commodities: Significant price drops in onions and potatoes.
- Government Action: GST rate cuts are aiding inflation control.
- Production Improvement: Better agricultural yields contributing to price reductions.
New Delhi, Sep 11 (NationPress) A recent report from Bank of Baroda (BOB) indicates that the consumer price index (CPI) is expected to stabilize at 2 percent for August, primarily due to a predicted drop in the Essential Commodity Index (ECI).
The public sector bank noted that the BoB ECI has entered deflation for the fourth consecutive month, decreasing by -1 percent on a year-on-year (YoY) basis in August and by -0.9 percent in the first nine days of September.
The decline has been largely supported by reductions in the prices of vegetables and pulses, attributed to improved production levels. In September, prices of tomatoes, onions, and potatoes are reflecting a downward trend, with the most significant drop in tomato prices.
Additionally, both global food and energy prices continue to contribute to a lower inflation rate.
The report emphasized that the government’s recent decision to reduce GST rates on a majority of FMCG and durable goods is a significant relief for inflation, estimating an overall impact on CPI to be between 55-75 basis points.
Out of 20 commodities in the index, ten have experienced deflation, with the steepest declines noted for onions and potatoes.
Onion prices have seen the most significant reduction since January 2021, with a drop of -37.5 percent YoY. The price of potatoes is also at its lowest in 44 months, according to the report.
Among pulses, many subcomponents are undergoing successive periods of deflation, with tur/arhar experiencing the largest decline of -29 percent in August. Other notable declines are seen in urad (-8.9 percent), moong (-5.2 percent), and masoor (-1.4 percent).
The reduction in inflation is closely linked to better production outcomes. This Kharif season has seen an increase in the sown area for pulses, while the retail price of rice has decreased at a slower rate.
Month-over-month (MoM), the BoB ECI rose by 1 percent in August, showing a 0.8 percent increase on a seasonally adjusted MoM basis, indicating that seasonal factors are partly driving the price changes.
Point of View
I view this report as a promising sign amidst ongoing economic challenges. The projected stabilization of inflation at 2% not only reflects effective government policies but also highlights the importance of agricultural production consistency. It’s crucial for the nation to remain vigilant and proactive in monitoring these economic indicators.
NationPress
12/09/2025
Frequently Asked Questions
What is the projected CPI for August?
The projected Consumer Price Index (CPI) for August is expected to stabilize at 2%.
What factors are contributing to the decline in inflation?
The decline in inflation is mainly due to falling food prices, particularly in vegetables and pulses, alongside reduced GST rates on essential goods.
How has the Essential Commodity Index (ECI) changed?
The Essential Commodity Index (ECI) has experienced deflation for the fourth consecutive month, decreasing by 1% YoY in August.
Which commodities are seeing the most significant price reductions?
Onions and potatoes are experiencing the sharpest price reductions, with onions dropping by 37.5% YoY.
What impact does the government’s GST reduction have?
The reduction in GST rates is expected to provide a relief for inflation, with an estimated impact on CPI between 55-75 basis points.
