Despite a slight uptick in August, several economists are lowering their inflation forecasts for India, citing the positive impact of Goods and Services Tax (GST) reforms.

India's retail inflation saw a marginal increase to 2.07% in August, according to data released by the National Statistics Office (NSO). This is a rise from the eight-year low of 1.61% recorded in July. The increase was attributed to a low base effect and a slower decline in food prices. Retail prices rose by 1.69% in rural India and 2.47% in urban areas.

Despite the slight increase, many economists believe the manageable inflation is due to effective GST reforms and anticipate further declines. Hemant Jain, President, PHDCCI, anticipates a further decline in CPI inflation, aided by the GST 2.0 reforms package. He believes the proposed simplified two-tier structure will reduce production costs, translate into lower prices, and stimulate consumption. Economists estimate that recent cuts in GST rates are expected to further lower the inflation print up to 90 basis points (bps) this financial year. Analysts estimate the downward pressure on the index on account of GST cuts to be 60-100 bps on an annual basis, assuming full pass-through.

Several economists have revised their inflation forecasts downwards. Crisil, for example, has revised its inflation forecast down to 3.2% from 3.5%, citing lower-than-expected food inflation and the expected easing of core inflation in the coming months due to the reduction in GST.

The Reserve Bank of India (RBI) in its bimonthly policy review last month, revised its average inflation projection for FY26 to 3.1 per cent from 3.7 per cent. The RBI expects inflation to inch up to 4.4% by year-end, and rise further to 4.9% in the first quarter of the next financial year. Madhavi Arora, chief economist, Emkay Global, said that the continued spate of inflation undershoot versus RBI's estimates would ensure FY26 inflation will likely undershoot RBI's estimates by at least 50bps.

The softening in prices in August 2025 for cereals and products, pulses & products, as well as moderation in clothing and footwear, housing, and fuel and light, in comparison to July 2025, have collectively helped keep inflation within RBI tolerance level. Aditi Nayar, Chief Economist, ICRA, noted that the sequential build up in prices has been quite modest in the ongoing fiscal so far, with the headline index rising by just 2.6% between March 2025 and August 2025. This has been aided by a relatively benign uptick in food prices, amid healthy crop output in the last two cropping seasons, as well as an upbeat outlook for the ongoing kharif crop.

However, large excess rains, and flooding in some parts of the country in late August 2025 and early-September 2025 could impact the kharif crop yields, and consequently output and prices, and thus, remain a key monitorable. Persistently high double-digit inflation in edible oils warrants close monitoring, given weak sowing trends, import dependence, and elevated global edible oil prices.

Some economists anticipate the RBI to consider additional repo rate cuts. Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank, sees some scope for rate cuts worth 25-50bp opening up from December policy if downside risks to growth materialize and the Fed moves ahead with aggressive rate cuts. Other economists predict a pause in RBI rate cuts.