India’s inflation rises to 2.07% in August, in line with expectations

After easing for nine straight months, India‘s consumer inflation in August rose to 2.07%, in line with analyst estimates, data from the government showed Friday.

Median estimates by economists polled by Reuters had pegged the year-on-year headline inflation rate at 2.1% after price growth in July hit 1.55% — the lowest since June 2017 — on the back of declining food inflation.

Despite the August uptick, India’s inflation is hovering close to the Reserve Bank of India’s target inflation band of 2% to 6%. The central bank last month forecast CPI growth of 3.1% for the fiscal year ending March 2026.

Benign inflation readings offer the central bank room to loosen monetary policy and cushion the impact of U.S. tariffs on the country’s growth.

In August, Washington imposed an additional 25% tariff on Indian imports over New Delhi’s purchases of Russian oil, raising total duties to as high as 50%, among the highest levies on any of Washington’s trading partners.

The move is expected to shave off 0.6 percentage points from India’s annual GDP rate for the fiscal year, according to a report by Goldman Sachs.

In a bid to spur domestic consumption to make up for the hit to exports, the government announced widespread cuts to the goods and services tax on Sept. 3. Fast-moving consumer goods, automobiles and farm products are expected to get cheaper once these cuts take effect on Sept. 22.

Economists at Citi expect the spending power of Indian households to improve “to 0.7% and 0.8% of GDP in the fiscal year ending March 2026”. They also see the GST cuts reducing inflation by 1.1 percentage points if the full tax cut is passed on to consumers.

Many leading automobile companies, like Tata Motors and Maruti Suzuki, have already declared price cuts, passing on the benefits of the tax cuts to customers. Many consumer goods companies, such as Hindustan Unilever, Colgate-Palmolive and Mars Wrigley, are also reportedly looking to cut prices.

Last month, India’s economy rose faster than expected at an annual rate of 7.8% in the April-June quarter, boosted by manufacturing, construction and service sectors. Even though the nominal growth showed signs of slowing down, the low inflation level made the growth rate look stronger, economists said.