India’s retail inflation rose to 2.07% year-on-year in August 2025, up from ~1.61% in July, driven largely by increases in food, meat & fish, oil & fats.

Vegetable prices declined steeply (-15.92%) but that was less than July’s fall (-20.69%), helping push up the overall food index. 

Core inflation (excluding volatile food & energy) stayed around 4.1%, suggesting consumer demand remains firm. 

Despite the rise, headline inflation remains well within RBI’s target band (2-6%), giving the central bank policy space. 

Analysts expect the recent tax cuts on many consumer items and favorable monsoon rains to moderate inflation in coming months. 

There is some risk from crop damage due to above-normal rainfall, especially for summer-sown crops like pulses and cotton. 

With inflation still low, many expect the RBI to pause at its next policy meeting, rather than hike or slash rates immediately. 

However, if growth slows sharply, this could open up room for rate cuts later in the fiscal year. 

The bond market reacted by pushing yields lower, anticipating lower inflation risk ahead. 

For consumers, modest price increases in food and daily essentials are being watched carefully, especially by middle-income households.