India's retail inflation ticked up to 2.07% in August, marking a modest rebound from July's eight-year low of 1.61% and snapping a nine-month streak of declining prices, according to provisional data released by the Ministry of Statistics and Programme Implementation (MoSPI).

The Consumer Price Index (CPI)-based headline inflation rose 46 basis points from the previous month, aligning closely with economists' median forecast of 2.1%. This uptick was primarily driven by a narrowing in food deflation, which eased to -0.69% year-on-year from -1.76% in July, as prices for vegetables, meat, fish, oils, and eggs firmed up. Rural food inflation stood at -0.70%, while urban areas saw -0.58%.

Despite the increase, the reading remains well below the Reserve Bank of India's (RBI) medium-term target of 4% and comfortably within its 2-6% tolerance band. Core inflation, excluding food and fuel, held steady around 4.1%, signaling subdued underlying demand pressures. Fuel and light inflation edged higher to 2.7%, while housing remained flat at 3.2%.

The nine-month easing cycle, which began in late 2024, had been fueled by favorable base effects and sharp drops in food prices, hitting a multi-year trough in July amid abundant harvests and stable global commodity costs. August's reversal reflects seasonal pressures and a partial unwind of those gains, though analysts attribute the overall benign trajectory to recent government interventions, including Goods and Services Tax (GST) rate cuts on essential items.

"Inflation continues to remain low at 2.1% for August, supported by lower food inflation and the impact of GST rate cuts," said Sakshi Gupta, economist at HDFC Bank. "We expect readings to stay subdued through the rest of 2025, averaging around 3.0% for FY26."

The RBI, which last cut rates in August amid slowing growth, had projected 2.1% CPI for the July-September quarter. With July-August averaging just 1.84%, the central bank may undershoot this unless September surprises to the upside. Economists see room for further monetary easing if growth moderates, with India's GDP expanding 7.8% in the April-June quarter—its fastest in a year—but facing headwinds from global tariffs and softening corporate earnings.

For households, the low inflation environment offers some respite amid rising employment and wage gains, though persistent food volatility remains a watchpoint. Full-year FY26 inflation is now eyed at 3.1-4.4%, per RBI and Citi forecasts, assuming no major supply shocks. Official final figures for August will be confirmed next month.