India’s retail inflation has started to climb again, after declining for three months. 

The consumer price index (CPI) based inflation rose to 7% in August compared to 6.71% a month ago, fuelling speculation that the Reserve Bank of India (RBI) may go for an aggressive rate hike in its next monetary policy.

The CPI inflation, which is factored by the RBI while deciding the monetary policy, has stayed above the central bank’s upper target zone of 6% for the eighth consecutive month. In the year-ago period, CPI inflation was 5.3%.

Food inflation, which accounts for nearly half the CPI basket, rose to 7.62% in August 2022, up from 6.69% in July and 3.11% in August 2021, as per the data released by the National Statistical Office (NSO) on Monday.

On an annual basis, the rate of price rise was in excess of 10% in the case of vegetables, spices, footwear, and 'fuel and light'.

However, there was contraction in inflation in egg and almost flat in protein rich 'meat and fish' in August.

Inflation had touched a high of 7.79% in April before declining to 7.04% in May. It touched 7.01% in June and further decelerated to 6.71% in July.

The key short-term lending rate (repo) has been raised by 140 basis points in three tranche since May this year. The last two hikes were 50 basis points each.

The central bank has hiked key policy rate by 140 basis points in three tranches since May this year. The last two hikes were 50 basis points each.

The RBI's next policy decision is due on 30 September. 

According to Aditi Nayar, chief economist at ICRA, the sequential hardening in inflation was largely driven by broad-based rise across the food segment, with a higher inflation in cereals, pulses, milk, fruits, vegetables, and prepared meals and snacks.

"We now foresee a higher likelihood that the MPC (monetary policy committee) will stick to the new normal rate hike of 50 bps in its September 2022 meeting, with the headline inflation having reversed to 7% in August 2022," she said.

Meanwhile, industrial growth, as measured by the Index of Industrial Production (IIP), plunged to 2.4% in July as compared to 12.3% in June.