Editorial 2: Improving macros:

Context

India anticipates a period of subdued inflation and comparatively strong growth.

Introduction

India’s retail inflation in August 2025 rose slightly to 2.1%, ending a nine-month decline but remaining within the RBI comfort zone (2%-6%). Food prices, including vegetables (-15.9%) and pulses (-14.5%), remained subdued, supported by the National Food Security Act. Low inflation, combined with high economic growth, signals a favorable macroeconomic environment and a shift from last year’s high-inflation scenario.

Current Inflation Scenario (August 2025)

• Retail inflation rose slightly in August, ending a nine-month declining trend.
• Rate: 2.1%, still within the RBI’s comfort band (2%-6%).
• Macroeconomic risk: Minimal; both government and RBI are unlikely to be alarmed.
• Food inflation: Subdued across urban and rural areas.
  • Vegetables: Prices fell 15.9%.
  • Pulses: Prices fell 14.5%.
  • Support: National Food Security Act ensures affordable staples.
• Inflation in other essentials like clothing, housing, fuel, and light remained low, even lower than July.

Macroeconomic Outlook Comparison

• Last year: Low growth, high inflation.
• Current year: High growth, low inflation.
• Growth-Inflation Differential:
  • Last year: ~2.1 percentage points
  • This year: ~5.5 percentage points → a healthy gap.
• Data reliability: GDP and inflation comparisons remain valid, despite standard questions.

Future Inflation Prospects

• Outlook: Benign; inflation likely to remain under control.
• Oil scenario:
  • India may reduce Russian oil imports under U.S. pressure.
  • Impact limited due to relatively low global crude prices.
• GST rate changes:
  • Effective from September 22
  • Expected to reduce prices, further easing inflation.
• Monetary policy expectations:
  • Q1 performance raises hopes for RBI rate cuts.
  • Given global uncertainties, a September cut may be premature.
  • December rate cut is a more likely outcome, depending on India-U.S. relations.

Key Inflation Indicators (August 2025)

Conclusion

The current low inflation-high growth scenario strengthens India’s macroeconomic outlook. With GST rate cuts and limited impact from potential oil supply shifts, inflation is expected to remain benign. Although the RBI may consider future interest rate adjustments, the overall environment suggests continued price stability, improved affordability, and a supportive framework for sustaining economic momentum in the coming months.