As expected, the year-on-year (YoY) headline CPI inflation (base year: 2024) inched up to 4.45% in July 2026 from 4.38% in June 2026, amidst an uptick in the food and beverages (F&B), and restaurants and accommodation services divisions. ICRA projects the CPI inflation to harden to 4.7% in August 2026, and cross 5.0% in September 2026, as the base effect turns unfavourable. While kharif sowing is only 1.8% below last year's level as on August 7, 2026, the volume and dispersion of rainfall in the remainder of the monsoon season will affect food output and prices. We expect the CPI inflation to average 5.0% in FY2027, in line with the Monetary Policy Committee’s (MPC) forecast, with the prolonging of tensions in West Asia and monsoon outturn posing risks to the upside. While immediate policy tightening is unlikely, elevated inflation projections between Q3 FY2027 and Q1 FY2028, suggest that the next move on rates will be a hike. Evidence of a generalisation in inflationary pressures in the next few months could result in a rate hike in the December 2026 meeting.

• CPI inflation rose marginally to 4.5% in July 2026 from 4.4% in June: As expected, the CPI inflation only inched up to 4.45% (ICRA's exp: +4.5%) in July 2026 from 4.38% in June 2026, led by the F&B (to +5.2% from +5.1% led by dairy & poultry items, and cereals) and restaurants and accommodation (to +7.7% from +6.9%) services.
• Limited signs of broad-basing in inflationary pressures: While the headline inflation print inched up in July 2026 vis-à-vis June, the range of inflation in items lying between the 10-90th percentile narrowed between these months. Besides, the share of items in the CPI basket with inflation >=4% dipped to ~28% in July 2026 from ~29% in June, after showing a sustained uptick in each of the last 5 months. Further, the strict measure of core inflation, which excludes jewellery remained subdued at 2.6% in the month (+2.5% in June 2026), implying that demand pressures are muted.