India August consumer inflation rebounds to 2.07%

16 Sep 2025 , 06:01 PM

AUGUST 2025 INDIA INFLATION REBOUNDS 46 BPS

The trend of falling inflation was finally broken in August 2025.  Between October 2024 and July 2025, CPI inflation had fallen 460 bps from 6.21% to 1.61%. In fact, the CPI inflation for July 2025 was revised up by 6 bps from 1.55% to 1.61%. For August, the food inflation remained in the negative for third month in a row; but hardened from -1.76% to -0.69%. The last time we saw lower levels of inflation was in June 2017, when it fell to 1.46%.

The third consecutive month of negative food inflation was an outcome of robust Kharif and Rabi output. However, specific items like oil & fats and fruits still show very high levels of inflation. The negative food inflation is largely on account of deep disinflation in vegetables and in pulses. In September 2024, food inflation spiked by 358 bps to 9.24% while headline inflation had spiked by 184 bps to 5.49%. That will again bring down inflation in Sep-25.

FOOD INFLATION HARDENS ON FRUITS AND OILS & FATS

Headline inflation in August 2025 bounced from a 97-month low. Here is a fact check.

Month	Food Inflation (%)	Core Inflation (%)	Headline Inflation (%)
Aug-24	5.66%	3.40%	3.65%
Sep-24	9.24%	3.49%	5.49%
Oct-24	10.87%	3.67%	6.21%
Nov-24	9.04%	3.64%	5.48%
Dec-24	8.39%	3.58%	5.22%
Jan-25	6.02%	3.67%	4.26%
Feb-25	3.75%	3.95%	3.61%
Mar-25	2.69%	4.10%	3.34%
Apr-25	1.78%	4.07%	3.16%
May-25	0.99%	4.17%	2.82%
Jun-25	-1.01%	4.40%	2.10%
Jul-25	-1.76%	4.10%	1.61%
Aug-25	-0.69%	4.10%	2.07%

Data Source: MOSPI & Ministry of Finance Estimates

Here is what we read from the inflation time series table.

There are interesting takeaways from the inflation data. The food inflation may start to show a bounce as the base effect gradually wanes. Also, the core inflation has stayed above 4% for the sixth month in a row, largely on account of robust gold prices, which is evident in high levels of personal effects inflation.

NON-FOOD INFLATION: URBAN VERSUS RURAL

Between July 2025 and August 2025, headline inflation rebounded from 1.61% to 2.07%. During this period, headline rural inflation rose from 1.18% to 1.69%, while headline urban inflation rose from 2.10% to 2.47%. What about food inflation? Between July and August 2025, headline food inflation hardened from -1.76% to -0.69%. Rural food inflation hardened from -1.74% to -0.70%, as urban food inflation bounced from -1.90% to -0.58%.

Non-Food Basket	Non-Food Weights	Rural Inflation	Urban Inflation	Headline Inflation
Clothing	6.32	2.22	2.76	2.42
Footwear	1.04	1.77	2.41	2.00
Clothing and footwear	7.36	2.13	2.69	2.33
Housing	–	–	3.09	3.09
Fuel and light	7.94	1.99	3.18	2.43
Household goods and services	3.75	2.11	3.12	2.54
Healthcare	6.83	4.41	4.42	4.40
Transport and communication	7.60	2.10	1.75	1.94
Recreation and amusement	1.37	1.95	2.46	2.20
Education	3.46	2.92	4.13	3.60
Personal care and effects	4.25	16.68	16.57	16.61
Miscellaneous	27.26	5.26	4.83	5.05

Data Source: MOSPI & Ministry of Finance Estimates

In the non-food basket; urban inflation has been higher in clothing, footwear, fuel, household goods, recreation, and education. On the other hand, rural inflation is higher for transport & communication, Personal Care Effects, and other items. The big inflation number on personal effects is the sustained impact of the gold price rally.

FOOD BASKET: HOW RURAL AND URBAN INDIA STACKED UP?

Food basket, with a weightage of 47.25%, is a major swing factor for CPI inflation reading.

Food Basket	Food Weights	Rural Inflation	Urban Inflation	Headline Inflation
Cereals and products	12.35	2.54	3.07	2.70
Meat and fish	4.38	1.23	1.96	1.48
Egg	0.49	2.82	3.51	3.12
Milk and products	7.72	2.47	2.83	2.63
Oils and fats	4.21	23.28	17.44	21.24
Fruits	2.88	13.76	9.32	11.65
Vegetables	7.46	-16.78	-14.46	-15.92
Pulses and products	2.95	-14.35	-14.89	-14.53
Sugar and Confectionery	1.70	3.83	3.46	3.73
Spices	3.11	-3.48	-2.71	-3.24
Non-alcoholic beverages	1.37	4.13	4.51	4.30
Prepared meals	5.56	3.83	4.56	4.19
Food Basket	47.25	-0.70	-0.58	-0.69

Data Source: MOSPI & Ministry of Finance Estimates

How do rural and urban inflation compare on the food basket? Rural inflation is comparatively higher in case of oils & fats, fruits, and sugar & confectionary. On the other hand, urban inflation is higher in case of cereals, meat, eggs, milk, vegetables, spices, non-alcoholic beverages, and prepared meals. Rural inflation is lower for high protein foods.

CAN WE EXPECT A RATE CUT FROM RBI IN OCTOBER?

The status quo in the August policy indicates that the RBI is playing its cards close to its chest. The tariff problem is for real, and is worsening by the day. India surely needs some regulatory and policy levers to address a worst-case scenario. The inflation remains well below the RBI target. With the Fed likely to cut rates despite higher inflation, the RBI will also be under pressure to lower rates. It is touch-and-go, but the one thing the RBI would want to avoid is further weakening of the rupee, which could happen if rates are cut. It is surely going to be a very tough call for the RBI!