New Delhi – India's retail inflation surged to a two-year high of 6.09% in October, breaching the Reserve Bank of India’s (RBI) upper tolerance limit. Official data released on Thursday revealed that escalating food prices are the primary catalyst, with the consumer food price index-based inflation hitting 8.94% last month, up from 7.74% in September.
Food Costs Drive Overall Price Increases
The spike in inflation is largely attributed to a significant hardening of food prices. Four of the top five items recording the highest inflation were vegetables. Onions led the charge with a staggering 116.22% inflation in October, followed by garlic at 60.74%. Other vegetables like ginger (48.32%) and lemon (47.3%) also saw substantial price increases.
Beyond food, inflation in personal care, social protection, and miscellaneous goods and services reached 10.14%, while restaurants and accommodation services saw a 10.06% rise. Even silver jewellery recorded a 52.39% inflation rate.
Experts Predict More Rate Hikes
Economists are warning that retail inflation will continue its upward trajectory in the coming months, exacerbated by an adverse base effect and a deficient monsoon impacting agricultural output. This sustained pressure on prices is expected to prompt further monetary tightening by the RBI.
Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, noted, “We expect the next few readings to remain elevated above 6% amid adverse base effect from GST, higher food prices and partial pass-through of higher commodity prices.” She anticipates additional rate hikes by the RBI in the current fiscal year.
Madan Sabnavis, Chief Economist at Bank of Baroda, echoed these concerns, stating that inflation has become broad-based, with 11 of 12 broad sectors experiencing higher inflation compared to September. He projects that the RBI will consider a 25 or 50 basis point hike in its December policy review, as core inflation is also expected to rise due to increased input costs for companies.
RBI's Stance and Future Outlook
The RBI had previously hiked the repo rate by 25 basis points in its October policy review, forecasting CPI inflation at 6% for the December 2026 quarter. However, the current data suggests that inflation is already at or above this projection.
Aditi Nayar, Chief Economist at ICRA Ltd, projects core inflation to inch up further in November, keeping the headline CPI inflation elevated at around 6.1%. ICRA expects CPI inflation to average about 6.2% in Q3 FY2027, slightly higher than the MPC's projection, with risks tilted to the upside due to monsoon irregularities and crude oil price volatility.
Consumers are therefore advised to brace for a prolonged period of elevated prices, with essential goods, particularly food, remaining a significant concern as the central bank grapples with inflation control.