India's consumer price index (CPI)-based retail inflation climbed to 5.54% in September, marking a 21-month peak. This significant rise from 4.83% in August is largely fueled by a sharp increase in food prices, which reached 7.74% last month, breaching the Reserve Bank of India’s (RBI) tolerance level.
The data, released recently, highlights a broader inflationary trend, with eleven of the twelve sub-groups recording price increases. Only the personal care group, a discretionary spending category, showed an exception. Rural retail inflation was notably higher at 6.08%, with rural consumer food price inflation (CFPI) even more pronounced at 8.06%.
Experts Predict Further Rate Hikes
Economists anticipate that retail inflation will continue to rise in October, influenced by an adverse base effect and persistent price pressures. Devendra Pant, Chief Economist at India Ratings and Research, projects food inflation could reach 9.1% and headline inflation around 6.0% in October 2026.
“An adverse base effect for food inflation in October 2025 could push food inflation in October 2026 to 9.1%. Headline inflation in October 2026 is expected to be around 6.0%, with the adverse base effect also contributing to higher inflation,” said Devendra Pant.
Pant also identified global crude oil prices, below-normal rainfall, and the adverse base effect as key risks. However, he noted that the recent appreciation of the rupee against the US dollar might offer some relief from imported inflation.
Madan Sabnavis, Chief Economist at Bank of Baroda, warned that the third quarter would be challenging, expecting inflation to peak at 6%. Both Pant and Sabnavis, along with Radhika Rao of DBS Bank, believe the RBI is likely to implement another 25 basis point rate hike at its December policy review.
Impact on Consumers and Specific Items
Industries such as consumer durables, FMCG, and automobiles have already announced price increases, which are expected to reflect in the CPI in the coming months. The condition of the kharif crop will also be crucial in determining future food inflation trends.
Among food items, vegetables and fruits, sugar, ready-made food products, eggs, meat and fish, and edible oils recorded the highest inflation. Onions saw an alarming inflation rate of 108.09% in September, while ginger and garlic also experienced significant hikes at 62.85% and 54.62% respectively. Silver jewellery also recorded high inflation at 87.8%.
The RBI’s Monetary Policy Committee recently raised its FY27 inflation forecast to 5.2%, projecting 4.9% in Q2, 6% in Q3, and 5.7% in Q4, underscoring the central bank’s concern that price risks are no longer benign.