The report notes that even a rate cut in December looks a little difficult if growth numbers for the first and second quarter (estimates) are taken into consideration
India’s Consumer Price Index (CPI) inflation, which moderated to 1.55 per cent in July 2025, exhibited slight uptick for August 2025 at 2.07 per cent. With August inflation print a tad higher that the 2 per cent mark, a rate cut in October looks onerous, as per a state bank of India (SBI) report.
Both rural and urban CPI inflation have increased in August 2025, to 1.69 per cent and 2.47 per cent, compared to 1.18 per cent and 2.10 per cent in July, respectively. As base effects turned to zero, the price momentum has contributed to the rise in headline inflation. SBI noted that even a rate cut in December looks a little difficult if growth numbers for the first and second quarter (estimates) are taken into consideration.
The torrential rainfall in most of the north-west states (India’s largest kharif crop producers) is a matter of worry and may impact food inflation. All-India rainfall between August and September (till 09 September) was nearly 8.7 per cent above normal, with sharp excesses reported in Punjab, Haryana, Rajasthan, Gujarat and Jammu and Kashmir. Southern states, too, were hit, with Andhra Pradesh recording 34 per cent higher rainfall and Telangana 58 per cent.
The report emphasised that since the Goods and Services Tax (GST) rate of essential items (around 295 items) has declined from 12 per cent to 5 per cent or nil, the CPI inflation in this category may also come down by 25 to 30 basis points (bps) in the financial year 2026 (FY26) after considering a 60 per cent pass through effect on food items.
Apart from this, the rationalisation of GST rates of services should also lead to another 40 to 45 bps reduction in CPI inflation on other goods and service items, considering a 50 per cent pass through effect. “Overall, we believe CPI inflation may be moderated in the range of 65 to 75 bps over FY26-27,” the bank added.
