India’s retail inflation based on the consumer price index (CPI) has surged to an eight-month high of 4.8% (y-o-y) in August, driven largely by a surge in food prices and a slowdown in non-food items.

This is the highest retail inflation rate since February 2022, when it was at 5.1%. The previous peak was seen in March 2020, during the initial stages of the COVID-19 pandemic, when inflation had jumped to 7.6%.

The National Statistical Office (NSO) reported that the CPI for August showed a 4.8% increase compared to the same month last year, up from July’s 4.5%. The government has been keeping a close eye on inflation rates, which have remained above the target of 2-3% since 2019.

Food prices accounted for much of the increase in inflation, with vegetables and fruits seeing significant jumps, while non-food items like clothing and footwear showed minimal growth. The rise in food prices is largely attributed to a surge in demand for perishable goods due to various festivals and holidays.

The Reserve Bank of India (RBI), which sets monetary policy, has been keeping interest rates low to support economic growth, but the recent increase in inflation rate could lead to a tightening of monetary policy. This could potentially curb consumer spending and have an impact on the overall economy.

Experts are also watching the inflation data closely for any signs of a potential price hike, which could erode the purchasing power of consumers. With the upcoming festival season, there is a risk that prices may rise further, affecting consumers’ ability to afford basic necessities.

The Reserve Bank of India has already taken steps to manage inflation, including increasing interest rates and limiting credit growth. However, with inflation remaining above target levels, policymakers will need to consider further measures to keep prices under control.

In a related development, the government has decided to extend the current budget period by six months to provide more time for fiscal consolidation and prepare for the upcoming election season. This decision aims to boost economic growth, which has been affected by various factors, including global headwinds and domestic policy initiatives.