Quote on CPI Inflation Rises 52bps MoM, PMI zooms to 63.2% by Shalini Shirsat, Economist, PL Capital
Below the Quote on CPI Inflation Rises 52bps MoM, PMI zooms to 63.2% by Shalini Shirsat, Economist, PL Capital
August 2025 CPI and IIP data suggest an economy in a phase of rate stabilization. CPI increased 52bps MoM to 2.07% alongside low food inflation (-0.69%) pointing to weak demand/supply-side pressures, particularly in rural areas, even as urban services and core sectors maintained some price momentum. Industrial growth at 3.5%, led by manufacturing and investment-oriented sectors like capital goods and infrastructure, signals that investment-driven activity is sustaining overall growth, despite seasonal monsoon impact in mining and electricity output. The momentum was further reinforced by PMI readings, with the composite index staying firmly in expansionary territory above 60, underscoring robust industrial and services activity. Together, these trends indicate a robust economy: consumption-driven growth is steady with but with variations in urban and rural demand, while production and investment are keeping the recovery on track. However, floods in several agricultural states affecting crop output and rural incomes, potential US trade barriers, and employment scenario still pose near term risks. Despite these headwinds, GST rate cuts, high public investment, easing interest rates, and stabilizing global commodity prices provide a positive foundation, suggesting the economy is likely to maintain a steady and resilient growth trajectory in the near term.
Key Insights:
* Headline CPI Inflation Edges Up to 2.07% in August 2025: Headline CPI inflation rose by 52bps to 2.07% YoY in August 2025 from 1.55% in July, reflecting near term bottoming out but remaining well within the RBI’s 4% target and 2-6% tolerance band. This signals continued lack of major demand-side pressures amid soft food deflation and stable core inflation.
* Food Inflation Softens to -0.69% in August 2025 Amid Stable Supplies: Food inflation remained negative but was -0.7% YoY in August compared to -1.8% in July. This reflects price rise in categories like vegetables, meat, fish, oils and fats, and eggs while overall supplies remain ample. The Combined Consumer Food Price Index (CFPI) echoed with less severe deflation.
* Core Inflation Remains Stable: Excluding food and fuel, core inflation components such as housing, clothing, and miscellaneous goods remained steady at 4.1%. indicating persistent demand in economy even as headline inflation remains low.
* Fuel & Light Prices Increase Moderately: After a period of negative or low inflation, fuel and light prices increased by 2.4%, reflecting higher domestic energy costs and partial pass-through from global crude prices.
* Urban and Rural Inflation Tick Up: Urban inflation was 2.47%, notably higher than rural inflation at 1.69%, reflecting stronger services, housing, and fuel price pressures in cities. The decline in rural inflation was largely due to deeper food price deflation, aided by strong kharif crop prospects after a good monsoon.
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