West Asia conflict weighing on business confidence: RBI Bulletin

The West Asia conflict remains a challenge to the supply chains of oil and other key commodities and is weighing on business confidence, Reserve Bank of India (RBI) officials stated in the August edition of RBI Bulletin which was released on Tuesday (August 25, 2026).

The new U.S. tariffs compounded the uncertainty in international trade, they said in the ‘State of the Economy’ article, adding that despite this, the global economy was expanding, though with inflationary pressures. 

Stating that the Indian economy continued to display strength notwithstanding these headwinds, they said it was on account of the country’s “robust macroeconomic fundamentals” that continued to “provide cushion to the domestic economy.”

They said domestic demand remained buoyant, as reflected by several indicators, including vehicle and tractor sales.

Petroleum product consumption growth returned to positive territory after three straight months of contraction, they pointed out.

Both merchandise exports and imports grew strongly in July 2026, with exports reaching a four-month high (in 2026-27 so far). The merchandise trade deficit widened in July, both sequentially and year on year (YoY), reflecting a widening deficit in electronic goods, they said. 

The pick-up in monsoon activity during July supported kharif sowing, taking it closer to the previous year’s level, they observed,

Stating that headline consumer price index (CPI) inflation increased marginally to 4.45% (YoY) in July 2026 from 4.38% in June, driven by ‘food and beverages’, while core inflation remained unchanged, they said eight out of twelve divisions witnessed a sequential increase in inflation in July.

“While headline CPI inflation edged up above the target, it was primarily on account of supply-side pressures. Stable core inflation reaffirmed the lower pass-through of cost pressures,” they emphasised.

The increase in ‘food and beverages’ inflation remained broad-based, with meat, eggs, and spices registering double-digit inflation. On a month-on-month (MoM) basis, indices for all sub-components of ‘food and beverages’ registered positive momentum in July. Fuel inflation edged up marginally in July, they said. 

As per the article, during August so far (till the 21st), high-frequency data suggest a broad-based sequential increase in food prices. Among cereals, rice and wheat prices continued their upward trajectory, though their pace of MoM increase stabilised.

“Within pulses, prices of all the major constituents inched up over previous month. Edible oil prices registered broad-based increases, led by mustard and palm oil. Pace of increase in prices of key vegetables moderated sequentially, with tomato prices recording a MoM decline,” the officials stated.

The price of the Indian basket crude oil increased to $89.7 per barrel in August (till 20th), higher than the average price recorded in both June and July, they stated.

The inflation edged up marginally both in urban and rural areas in July and most of the States/ UTs recorded inflation in the range of 2–6%, they stated.