The Indian stock market witnessed strong momentum on Friday as benchmark indices opened higher and sustained gains throughout the session. The Nifty had closed around 25,000 in the previous session, and on Friday it opened at 25,074.45, never slipping into the red during the day. The index ultimately added around 100 points, supported largely by global cues.

One of the strongest drivers behind this rally was the performance of U.S. markets. Overnight, American indices surged by 1 to 1.5 percent after inflation and labor market data came in better than expected. U.S. inflation figures, jobless claims, and unemployment data indicated cooling price pressures, which boosted market confidence that the U.S. Federal Reserve could cut interest rates in its upcoming September 16-17 policy meeting.

Following this global optimism, attention quickly shifted to India’s domestic inflation numbers, which were released after market hours on Friday. The data for August showed Consumer Price Index (CPI) inflation at 2.07 percent, compared to market expectations of 2.1 percent. While the figure was slightly below estimates, it remained comfortably above the 2 percent floor, making it a positive outcome for the economy.

Last month, inflation had stood at 1.55 percent, which was the first instance of CPI dipping below the 2 percent mark. While such a sharp fall is not necessarily negative if it happens once, repeated readings below 2 percent could raise concerns. However, the current 2.07 percent level signals stability, as inflation remains above 2 percent and below the critical 6 percent ceiling, with the ideal target range considered to be around 4 percent.

With this, India now has two months of data for the second quarter of FY2025-26: July at 1.55 percent and August at 2.07 percent. The Reserve Bank of India (RBI) had earlier projected CPI inflation for Q2 at 2.1 percent. Using a simple average calculation, to meet this projection the September reading should come around 2.68 percent. If inflation settles within this tolerance range, RBI’s estimates would remain on track. Even if the number is slightly higher, say close to 3 percent, the broader picture would still not be alarming since inflation would remain well below 4 percent.

The next critical question is how this inflation print will influence the RBI’s Monetary Policy Committee (MPC) meeting scheduled from September 29 to October 1. Since Sanjay Malhotra replaced Shaktikanta Das as RBI Governor, the central bank has consistently opted for rate cuts to stimulate growth, with the last meeting being the only exception when rates were left unchanged. Given that GST rates have already been cut to boost consumption, the possibility of another repo rate reduction, perhaps by 25 basis points, is now on the table.

Global uncertainty, however, remains a challenge. U.S. President Donald Trump’s shifting stance on tariffs has created volatility in international markets, and RBI will have to weigh these external risks. Still, with inflation data supportive and domestic conditions favoring growth, markets are anticipating a possible rate cut from the central bank.

For retail investors and beginners, the 2 percent inflation figure may seem unrealistic when compared to rising costs in education or healthcare. This is because the CPI index is heavily weighted towards food and beverages, which account for nearly 50 percent of the basket. By comparison, health carries a weight of 5.89 percent and education 4.5 percent. This means even significant inflation in education or healthcare does not move the overall CPI figure as much as fluctuations in food prices do. If food inflation remains moderate, headline CPI will remain low, even if other categories rise sharply.

In conclusion, India’s August inflation data has come in better than expected at 2.07 percent, setting a positive tone for markets. With the RBI MPC meeting approaching, investors are keenly watching whether the central bank delivers another rate cut. While external uncertainties such as U.S. tariff policies remain, domestic inflation conditions provide room for monetary easing. The final reaction will be visible when markets reopen on Monday, as traders price in the possibility of another rate cut.