YES Bank sees RBI rate hike cycle beginning in December as CPI inflation rises to 4.82% in August

India’s headline consumer price inflation rose to 4.82% year-on-year (YoY) in August, up from 4.45% in July, while food inflation increased to 5.95% from 5.52% during the same period, according to a report by YES Bank. However, the month-on-month (MoM) momentum of headline CPI inflation eased to 0.73% in August from 0.89% in July, marking the third consecutive month of moderation. 

Core CPI inflation, which excludes food, fuel and light, rose to 4.2% YoY in August from 3.9% in July. Within core inflation, price momentum was higher in information and communication services, as well as transport services. 

WPI inflation momentum reverses 

Wholesale price inflation (WPI) reversed its declining trend in August, with sequential momentum rising to 0.73% from a contraction of 0.27% in July. The increase was led primarily by the fuel and power group. 

On a year-on-year basis, headline WPI inflation stood at 9.9% in August, while core WPI inflation, excluding food, was recorded at 8.1%. Fuel and power prices rose 22% YoY and increased 2.75% sequentially, compared with a 4.9% contraction in July. 

Food prices rose 5.7% YoY, supported by higher prices of fruits and vegetables. Inflation in primary articles eased to 7.8% from 8.5% in July. Core WPI inflation, however, remained elevated at 8.1%. 

Food inflation remains elevated 

The Consumer Food Price Index (CFPI) rose 5.95% YoY in August, compared with 5.3% in July. However, its sequential momentum eased to 1.2% from 2.1% in July, driven by a moderation in the prices of fruits, vegetables and pulses. 

Core inflation increased across several categories. Inflation in paan, tobacco and other intoxicants stood at 4.7% YoY. Restaurant and accommodation services inflation rose to 8.4% from 7.7% in July, although the momentum of price increases weakened. 

Personal care and miscellaneous inflation increased to 15.2% from 14.8%, largely due to higher gold and silver prices. Housing, water and electricity inflation rose to 2.6%. Fuel inflation increased to 3.1%, driven by higher cylinder, natural gas and personal transport fuel prices. 

West Asia crisis poses inflation risks 

YES Bank said the resurgence of the West Asia crisis, which has pushed Brent crude prices to around $105–110 a barrel, poses a significant risk to India’s inflation outlook. Higher commodity prices could lead manufacturers to pass on increased input costs to consumers. 

“Some segments, such as automobile manufacturers, have already announced price increases,” the report said, adding that elevated crude prices also raise the possibility of another round of increases in petrol and diesel pump prices. 

A poor monsoon and lower kharif rice sowing remain risks to retail inflation. The bank estimates headline inflation for FY27 at 4.9% and expects headline WPI inflation in the second half of FY27 to remain at 5.5–5.7%, broadly in line with the Reserve Bank of India’s projections. 

YES Bank’s base case is for the RBI to begin its rate-hike cycle in December, while October remains a possibility. The central bank, it said, is likely to remain watchful of whether inflationary pressures are becoming broad-based. Before raising the repo rate, the RBI may also continue withdrawing surplus liquidity to bring the weighted average call money rate (WACR) closer to the repo rate.