India's inflation rate in August increased slightly to 3.7%, with rising prices of services and food.

India's inflation rate in August increased slightly from the previous month's 3.6% to 3.65%. The favorable base from last year helped restrain consumer inflation, despite the increase in the food category.

This consumer price index is slightly higher than the median of 3.5% in the MC opinion survey. The economists of the MC opinion survey were between 3.2% and 4%.

Aditi Nayar, Chief Economist of Icra, stated, "The unexpected CPI inflation rate for August 2024 increased to 3.7%. This is in contrast to the forecast of easing led mainly by the food and beverage sector."

The inflation rate rose to 6.8% in August 2023.

In addition to food inflation, the rise in service inflation also contributed to the increase in the consumer price index. The service (excluding residence) inflation rate rose to a high level of 3.9% in August, the highest in 11 months.

There was no change in the overall consumer price in August compared to the previous month.

Economists expect inflation rates to rise further over the next few months as the base effects fade.

"In the future, the base effects will turn unfavorable in September, just before the early festive season. We expect the inflation rate for the fiscal year 2025 to average 4.8%", said Rajani Sinha, Chief Economist at CareEdge.

Mr. Nayyar of Icra pointed out that the inflation rate in September could rise to 4.8%, surpassing 4%. "As the high base fades, the inflation rate for food and beverages will rise sharply."

Experts also point out that the rise in the core inflation rate, which remained unchanged at 3.4% in August, will drive inflation in the coming months.

"While food inflation is expected to stabilize as the kharif crop harvest progresses, core inflation is expected to rise as input costs are reflected in prices. This sector will rise towards the 4% level," said Madan Sabnavis, Chief Economist at Bank of Baroda.

The Reserve Bank of India had predicted that the inflation rate for the fourth quarter would settle at 4.4%. However, experts point out that two consecutive months of figures below 4% suggest a lower trajectory.

In July, while prices softened in most food categories, legumes continued to record double-digit growth. Although the inflation rate for legumes has eased from 14.8% the previous month, it was still at a high level of 13.6% in April.

The inflation rate for legumes has maintained double-digit growth for 15 months. On the other hand, the inflation rate for vegetables increased from 6.8% the previous month to 10.7%, and the inflation rate for fruits jumped from 3.8% to 6.5%.

In the case of vegetables, despite the easing of inflation for potatoes and onions since July, it still exceeds 50%.

According to the Tally index released earlier this week by Crisil, prices of onions and potatoes are rising.

According to Paras Jasrai, Senior Analyst at India Ratings and Research, the positive effect of the successful sowing of kale will only appear after the harvest, specifically after October 2024. Until then, it is expected that the inflation rate for legumes will remain in double digits, and the inflation rate for grains will also exceed 6%.

Food accounts for almost 39% of the consumer basket.

Since the risk of food inflation has not been completely alleviated, it is important to monitor food prices in the future. As it could have a significant impact on household inflation expectations, it is essential to control the price pressure in the food basket, as stated by Mr. Singh of CareEdge.