Inflation outlook: Economists lower forecasts despite August uptick; GST reforms to provide support

India’s retail inflation inched up in August, though experts say that the increase is likely temporary and should not disrupt the country’s overall price stability, supported by recent GST reforms.According to official data released on Friday, retail inflation, measured by the Consumer Price Index (CPI), rose to 2.07% year-on-year in August 2025, up from 1.61% in July. Despite the 46 basis-point jump, inflation remained well within the Reserve Bank of India’s (RBI) comfort range of 2-6%.Food prices, which had been steady for several months, began to show signs of firming. While global inflationary pressures have concerned many countries, India has largely maintained a stable trajectory, ANI reported. The RBI had kept its benchmark repo rate at 6.5% for 11 consecutive meetings before cutting it for the first time in almost five years in February 2025. Following its latest Monetary Policy Committee review, the RBI revised its inflation forecast for 2025-26 down from 4% to 3.7%.Hanna Luchnikava-Schorsch, Head of Asia-Pacific Economics at S&P Global Market Intelligence, said the August data matched expectations.

“India's headline CPI inflation edged up to 2.1% year on year in August from 1.6% year on year in July, aligning with our projections. As we anticipated, inflation bottomed in July, with consumer prices rising at a faster clip in August on the back of fading base effects, solid demand, and weakening rupee,” she said.She added that GST rate cuts are expected to moderate future inflation.“The effects of GST rate cuts should lower the pace of acceleration from October onwards, keeping the headline inflation rate within or near the central bank's 4% target range midpoint through the end of 2025,” ANI quoted the expert.S&P Global now projects CPI inflation for FY26 to average 3.3%, down from the previous forecast of 3.5%.Industry leaders welcomed the report. Hemant Jain, President of the PHD Chamber of Commerce and Industry (PHDCCI), said, “Looking ahead, we anticipate a further decline in CPI inflation, aided by the GST 2.0 reforms package. The proposed simplified two-tier structure will reduce production costs, translate into lower prices, and, in turn, stimulate consumption.”Rajani Sinha, chief economist at CareEdge, described the August figure as “comfortable.”“Headline inflation inched up to 2.1% in August as the favourable base effect waned and food prices moved out of deflation. However, it remained at comfortable levels owing to muted food inflation,” Sinha said, adding that a good monsoon, adequate reservoir levels, and strong kharif sowing should support food price stability.She also highlighted the impact of GST rationalisation.“We estimate that it could lower CPI inflation by 70-90 bps annually under the current basket, assuming effective pass-through to consumers. With food inflation subdued and demand-side pressures contained, we now lower our inflation projection for FY26 to 2.7% from 3.1% earlier,” Sinha said, as quoted by ANI.Dharmakirti Joshi, chief economist at Crisil, said, “Given the lower-than-expected food inflation and the expected easing of core inflation in the coming months due to the reduction in the goods and services tax, we have revised our inflation forecast down to 3.2% from 3.5% for this fiscal.”Joshi added that the revision could allow for further monetary easing,“…we expect the RBI to cut the repo rate by another 25 basis points later this fiscal.”Soumya Kanti Ghosh, chief economic adviser at State Bank of India, was more cautious.“With August inflation print a tad higher than the 2% 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 are taken into consideration,” Ghosh said.The CPI data for September 2025 is scheduled for release on October 13, or the next working day if the date falls on a holiday.