Aug-26 CPI Inflation: WPI steady, CPI surges higher

KEY TAKEAWAYS:

• India’s CPI inflation rose to 4.8% YoY in Aug-26 from 4.5% in Jul-26.
• Component-wise, food (5.7% YoY), fuel (5.2% YoY), and core (4.2% YoY) inflation are seen to be running at their highest levels since Jan-26.
• WPI inflation also remained firm at 9.9% YoY in Aug-26, marking its fourth consecutive print in the elevated range of 9.5-10.0%.
• Food price momentum has firmed up for six consecutive months on the back of weather and war related disruptions. 
• Rainfall during the ongoing southwest monsoon season (Jun1 – Sep 14) is running 15% below normal. 
• The second-round pass-through to core inflation is also seen to be picking up. Price pass-through of this nature typically takes about two quarters to peak.
• We expect the trajectory to continue to steepen in the coming months, as the impact of a deficient and erratic monsoon on kharif output as well as Rabi sowing trickles through. 
• The geopolitical situation also remains under close watch. While we retain our average FY27 crude price assumption of USD 80-85 pb, the possibility of an upside has built up materially. 
• As of now, we maintain our FY27 CPI inflation forecast of 5.1%, up from 2.1% in FY26. 
• The growth-inflation trajectory here on should allow RBI to embark on a shallow rate tightening cycle of 50 bps in FY27 in H2FY27.

India’s CPI inflation rose further to 4.8% YoY in Aug-26 from 4.5% in Jul-26, in line with expectations. This marks the third successive print exceeding the 4.0% target.  On the other hand, WPI inflation also remained firm at 9.9% in Aug-26 compared to a downward-revised 9.8% in Jul-26 (vs. 9.9% earlier). With this, WPI has remained elevated within a tight range just shy of a double-digit print.

Key highlights of Aug-26 CPI data

• On a sequential basis, CPI rose by 0.73% MoM in Aug-26, lower than the 0.89% increase recorded in Jul-26 – to mark the second month of lower sequential momentum
• Annualised Food & Beverages inflation rose further to a fresh series high of 5.7%, up from 5.2% in Jul-26. The underlying index rose at a somewhat slower pace, of 1.15% MoM compared to 1.99% MoM in July’26   – amidst offsetting internal trends.
  1. On one hand, prices of meat, fish & other seafood decelerated on the back of festive seasonality as demand is likely to have dipped during the month of Shravan. This was accompanied by a slower pace of build-up in prices of vegetables as well as ready-made food items. 
  2. On the other hand, there was a sharp surge recorded in sugar, confectionery items (7.64%MoM), edible oil (1.4%MoM) and cereals sub-indices (1.43%).
  3. In particular, domestic sugar prices have risen considerably in recent weeks, up by ~30% YoY as of mid Sep-26 owing to lower production in 2025-26 and weather shocks (excess rainfall in key cane-growing states like Maharashtra, Karnataka, and Gujarat). 
• Consolidated fuel inflation firmed up to 5.2% YoY from 4.6% in Jul-26, reflecting continued albeit gradual build-up of second-order impact of past fuel price hikes (via higher courier charges and airfare tariffs), along with a highly unfavourable base.
• Surprisingly, Core CPI inflation (represented by the CPI excluding food and beverages and all fuel items) rose to 4.2% in Aug-26, after remaining in a tight range of 3.7-3.9% over the last 6 months. Higher annualised inflation in categories of Information & Communication (led by an increase in mobile phone charges), along with Personal Care (led by jewellery prices), were the key drivers.

Key highlights of Aug-26 WPI data

• On a sequential basis, WPI index expanded by 0.73% MoM in Aug-26, reversing the contraction recorded in the previous month. Momentum was broad-based, with all three sub-sectors recording strong gains in the month. 
• The sequential momentum was predominantly led by the fuel and light index, which rose by 2.75% MoM in Aug-26. ATF, Naphtha and Furnace oil posted upward price adjustments. WPI Fuel and light index continues to track global crude oil movements closely. With renewed skirmishes between the US and Iran in Aug-26, Brent crude price rose to an average of USD 83.9 pb compared to USD 80.5 pb in July’26.
• Core WPI inflation (Ex-F&B and Fuel) eased to 8.7%YoY in Aug-26 from its series peak of 9.2% in Jul-26. Sequential pressures painted a mixed picture. Motor vehicles, trailers/semi-trailers, Chemicals, and Rubber & plastic products, etc. led the sequential price gains. This was largely offset by sequential price declines in the case of Miscellaneous manufacturing items, Basic metals, Wood products, etc.

Inference and Outlook

Headline CPI inflation for the month of Aug-26 has seen a broad-based increase, with all three components of food, fuel and core inflation recording an upside. While the upside in food and fuel was on expected lines, the upside in core came somewhat as a surprise. 

To be sure, the sharp acceleration in core inflation to 4.2% has come somewhat earlier than anticipated. While we had expected underlying price pressures to firm through H2 FY27, as festive demand gathers momentum and the disinflationary impulse from GST rate reductions wanes by Sep-26, the pronounced uptick in Aug-26 suggests that this trajectory may already be underway. The timing, rather than the direction, therefore, constitutes the key surprise, with the latest print potentially marking an earlier-than-expected inflection in the core inflation cycle.

Food price momentum has now firmed for six consecutive months on the back of weather and war related disruptions. Rainfall during the ongoing southwest monsoon season (Jun1 – Sep 14) is running 15% below normal. The second-round pass-through is also broadening, as seen in the prices of select transport services, courier charges and airfares rising at a faster clip. Price pass-through of this nature typically takes about two quarters to peak. 

For Apr-Aug FY27, CPI inflation has averaged 4.2% YoY compared with 2.5% over the corresponding period in FY26. Looking ahead, we expect the trajectory to continue to steepen in the coming months, as the impact of a deficient and erratic monsoon on kharif output as well as Rabi sowing trickles through. The geopolitical situation also remains under close watch. While we retain our average FY27 crude price assumption of USD 80-85 pb, the possibility of an upside has built up materially. As of now, we maintain our FY27 CPI inflation forecast of 5.1%, up from 2.1% in FY26. The growth-inflation trajectory here on should allow RBI to embark on a shallow rate tightening cycle of 50 bps in FY27 in H2FY27.

Table 1: Overview of key sub-components of inflation

Note: 

1) CPI-Consolidated Fuel index includes the group Electricity, gas and other fuels under the Household, water, electricity & other fuels division, and Diesel, Petrol and natural gas (CNG) items from the Transport division.

2) CPI-Core excludes Food & Beverages and Consolidated Fuel indices from Headline CPI.

3) Readings under the memo items are derived from imputed indices. 

4) All figures have been rounded off to the first place of decimal. 

Chart 1: Cumulative seasonal rainfall deficiency is currently at 15% on account of dismal performance since August