Rate Cut Unlikely This Year as August Inflation Rises Slightly Above 2%: SBI Research

New Delhi — With India’s August inflation figure coming in slightly above the 2 per cent mark, a rate cut in October appears unlikely, according to a report released by SBI Research. The report further noted that even a potential December rate cut seems difficult if the first-quarter growth data and the estimated second-quarter numbers are taken into account.

The report highlighted that since the Goods and Services Tax (GST) rate on around 295 essential items has been reduced from 12 per cent to either 5 per cent or NIL, consumer price index (CPI) inflation in this category could ease by 25–30 basis points in FY26, assuming a 60 per cent pass-through effect on food items.

Additionally, the rationalisation of GST rates on services is expected to result in another 40–45 basis point reduction in CPI inflation on other goods and services, with a 50 per cent pass-through effect factored in.

“Overall, we believe CPI inflation may moderate in the range of 65–75 basis points over FY26–27,” SBI Research stated.

India’s CPI inflation, which had fallen to a 98-month low of 1.55 per cent in July 2025, saw a marginal uptick in August, rising to 2.07 per cent. This increase was primarily attributed to a rise in food and beverages inflation, which had been in the negative zone for the previous two months.

Breaking down the data, the report said:

• Inflation on meat and fish rose to 1.48 per cent in September, after staying negative between April and July.

• Vegetable prices remained negative at –15.92 per cent, though this was a marginal improvement compared to previous months.

• Pulse prices declined further, standing at –14.53 per cent.

• Spice prices also fell in August.

• Fruit inflation dipped to 11.65 per cent.

• Inflation in oil and fats increased significantly to 21.24 per cent.

India’s core inflation also rose, reaching 4.16 per cent. Both rural and urban CPI inflation moved higher in August, with rural inflation at 1.69 per cent compared to 1.18 per cent in July, and urban inflation at 2.47 per cent compared to 2.10 per cent in July.

State-wise analysis revealed that out of 35 States and Union Territories, 26 recorded inflation under 4 per cent. However, Kerala and Lakshadweep stood out with inflation rates exceeding 6 per cent.

On the agricultural front, the report observed that India’s kharif sowing has expanded by 2.5 per cent compared to the same period last year. Yet, heavy torrential rains over several weeks pose a risk of eroding these gains. As of September 11, all-India rainfall for the August–September period was nearly 8.7 per cent higher than normal.

With inputs from IANS