Is a Rate Cut Possible This Year with August Inflation Above 2%?
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Synopsis
The latest SBI Research report suggests that with August inflation slightly above the 2% mark, a rate cut in October seems unlikely. Even a December cut faces challenges based on growth data. Discover the implications of these inflation trends on India's economy and what it means for consumers.
Key Takeaways
- August inflation is slightly above 2%.
- A rate cut in October seems unlikely.
- GST reductions could lower CPI inflation by 25-30 basis points.
- Core inflation has risen to 4.16%.
- 26 out of 35 states have inflation under 4%.
New Delhi, Sep 13 (NationPress) With the inflation rate for August exceeding the 2 percent threshold, a rate cut in October appears improbable, as indicated by a report from SBI Research. The possibility of a rate reduction in December also looks challenging when considering the growth figures for Q1 and the projected Q2 data.
The report highlights that the Goods and Service Tax (GST) reduction on approximately 295 essential items from 12 percent to 5 percent or NIL could lead to a decline in the consumer price index (CPI) inflation in this category by 25-30 basis points in FY26. This is based on a 60 percent pass-through effect on food items.
Moreover, the rationalization of GST rates for services is expected to contribute an additional 40-45 basis points reduction in CPI inflation for other goods and services, accounting for a 50 percent pass-through effect.
SBI Research asserts that overall, CPI inflation could be moderated by 65-75 basis points during FY26-27.
India's CPI inflation, which hit a notable low of 1.55 percent in July, has seen a minor increase to 2.07 percent in August, primarily due to a rise in food and beverage inflation, which had been negative for the previous two months.
Inflation for 'meat and fish' has risen to 1.48 percent in September, reversing the negative trend from April to July. Although vegetable prices remain in the negative range, they slightly increased in August to –15.92 percent.
Pulse prices dropped by –14.53 percent, while spice prices also saw a decrease in August. Fruit inflation fell to 11.65 percent, whereas Oil and fat CPI surged to 21.24 percent.
Core inflation in India surged again to 4.16 percent. Both rural and urban CPI inflation rose in August, registering at 1.69 percent and 2.47 percent, respectively, compared to 1.18 percent and 2.10 percent in July.
The state-wise inflation analysis reveals that out of 35 States and Union Territories, 26 recorded inflation rates below 4 percent. Only Kerala and Lakshadweep reported inflation exceeding 6 percent.
In agricultural developments, India's kharif sowing has expanded by 2.5 percent compared to last year; however, weeks of heavy rainfall threaten to undermine these gains. The report stated that all-India rainfall from August to September 11 was nearly 8.7 percent.
Point of View
I believe that understanding the dynamics of inflation is crucial for both policymakers and the public. The recent data indicates a complex scenario where inflationary pressures persist, making it vital for the nation to navigate these economic challenges with informed strategies.
NationPress
14/09/2025
Frequently Asked Questions
What is the current inflation rate in India?
As of August, the CPI inflation rate in India is reported at 2.07%.
Will there be a rate cut in October?
According to SBI Research, a rate cut in October is unlikely given the current inflation trends.
What factors are influencing inflation rates?
Key factors include the GST rate changes, food prices, and overall economic growth data.
How does GST affect consumer prices?
The reduction in GST on essential items is expected to lower CPI inflation by 25-30 basis points.
What trends are observed in food prices?
Food and beverage inflation has seen an uptick, impacting the overall CPI.
