India inflation hits 4.8% as price pressures broaden beyond food and fuel: Report

India’s inflation has risen to 4.8% year-on-year, its highest level since January 2025, with price pressures beginning to broaden beyond food and fuel, according to BNP Paribas. The increase comes at a time when several high-frequency indicators are showing signs of moderation, creating a more challenging environment for policymakers.

The BNP Paribas India Strategy report said inflation has remained above the Reserve Bank of India’s 4% target for three consecutive months. More importantly, the recent rise is not confined to food and fuel, with core consumer price inflation also accelerating.

Core CPI, which excludes food and fuel, has been moving higher, partly driven by an increase in metal prices. This indicates that inflationary pressures are becoming broader across the economy rather than remaining concentrated in volatile food and energy components.

According to the report’s high-frequency data, headline CPI inflation rose steadily through 2026, reaching 4.8% in August from 3.4% in March. Core CPI also increased to 4.3% in August from 3.3% in March, indicating a broader pickup in underlying price pressures.

The development is significant for monetary policy because persistent core inflation could make it more difficult to maintain an accommodative interest-rate environment if headline inflation continues to move away from the central bank’s target.

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Oil prices add another risk

The inflation outlook is also being clouded by higher crude oil prices. Brent crude has risen above $100 a barrel, while the Indian crude basket has also moved higher. BNP Paribas identified rising oil and commodity prices as a material near-term challenge for India’s macroeconomic outlook.

Higher crude prices can increase transportation and production costs and put additional pressure on consumer prices. The report said the escalation in the Middle East has worsened India’s macro outlook, while the rise in oil prices and commodity inflation remains a key near-term concern.

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Economic activity shows signs of moderation

The increase in inflation comes alongside weakening momentum in some parts of the economy. Manufacturing PMI fell to 52.8 in August, its lowest level since August 2021, while growth in new orders and steel production has moderated.

Services activity has also softened, with airline passenger traffic, FASTag payments, cargo volumes and port traffic recording weaker growth. Consumer sentiment has declined, while urban wage growth fell to 10.5%.

However, the economy continues to have areas of resilience. Bank credit growth has accelerated to around 20%, led by industry and services, while passenger vehicle sales remain strong.

With inflation at 4.8%, crude prices elevated and the rupee under pressure, BNP Paribas said the RBI has less room to keep interest rates unchanged, adding another layer of uncertainty to the economic outlook.

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