India’s Headline Inflation Expected to Reach 4.88% in August Amid Food and Fuel Pressures

India’s headline retail inflation is expected to accelerate to 4.88% in August from 4.44% in July, according to a Union Bank of India report. That would mark a second consecutive monthly increase and the highest reading in the 2023-24 series, the report said.

Food inflation is projected to rise to 6.03% from 5.24% in July. The pressure is expected to come from several essential food categories, although vegetable inflation could moderate sharply to 0.39% year on year. The report said that decline would be offset by continued price increases elsewhere.

Sugar prices are a particular concern. Sugar inflation is expected to rise 11.53% month on month in August, its highest level on record, following an estimated 15% increase in sugar prices during the month. Price data from the Department of Consumer Affairs also showed broad-based increases in sugar, vegetables, cereals and edible oils, while pulses and milk prices remained largely firm.

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We expect India's Consumer Price Inflation (CPI) to rise to 4.88% in August' 26 from 4.44% in July, marking the second consecutive monthly acceleration and highest reading in the 23-24 series.

The report expects milk inflation to strengthen over the next couple of months after recent retail price increases in several states. Cereal inflation likely rose to 2.2%, while pulses inflation increased to 2.7%, which the bank attributed to tight domestic supplies and persistent pricing pressure.

Excluding vegetables, consumer inflation is expected to reach 5.11%. Core inflation likely rose to 4.30% from 4.15% in July, while core inflation excluding precious metals and auto fuels was projected to edge up to 2.70% in August.

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Milk inflation is expected to strengthen in the next couple of months following the recent upward revisions in retail milk prices across several states.