Retail inflation may remain above 6 pc for next few months; economists see possibility of rate hikes

Mumbai's consumer price index-based retail inflation is projected to remain above 6 percent in upcoming months

Mumbai: India's consumer price index (CPI)-based retail inflation is expected to remain above the Reserve Bank of India's (RBI) upper tolerance limit of 6 per cent over the next few months, driven by higher food prices, an adverse base effect and the partial pass-through of elevated commodity prices, economists said.

The sustained rise in inflation could increase the likelihood of monetary tightening, with the RBI potentially raising the benchmark interest rate by 0.25 per cent each in its December and February monetary policy reviews, they said.

Also Read: India's October retail inflation quickens to 6.09% to breach RBI's tolerance ceiling

"We expect the next few readings to remain elevated above 6 per cent amid adverse base effect from GST, higher food prices and partial pass-through of higher commodity prices," said Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank.

Aditi Nayar, Chief Economist at ICRA, expects CPI inflation to average 6.2 per cent in the October-December quarter of FY27, marginally higher than the Monetary Policy Committee's (MPC) projection of 6 per cent for the quarter.

Also Read: SBI economists halve December RBI rate hike forecast to 25 bps on easing rupee pressure, foreign inflows

Inflation is expected to ease modestly thereafter as the adverse base effect dissipates, she said.

Retail inflation surged to 6.09 per cent in October, breaching the upper limit of the tolerance band set for the RBI for the first time in two years, driven primarily by a sharp rise in food prices.

Food inflation accelerated to 8.94 per cent in October from 7.74 per cent in September, according to data released by the Ministry of Statistics and Programme Implementation.

Food prices continued to be a major contributor to the inflationary pressures, with onions, garlic, ginger and lemons witnessing particularly sharp price increases.

Of the 12 categories covering goods and services, 11 recorded an increase in inflation during the month.

Inflation in restaurant and accommodation services stood at 10.06 per cent, while food and beverages (F&B) recorded 8.51 per cent. Personal care and miscellaneous goods and services saw inflation at 10.14 per cent.

Among individual items, onion prices recorded the highest inflation at 116.22 per cent, followed by garlic at 60.74 per cent, silver jewellery at 52.39 per cent, ginger at 48.32 per cent and lemon at 47.30 per cent.

Economists expect food inflation to remain elevated in the coming months, citing weather-related risks that could affect crop production and supplies.

"Domestically, weather-related risks remain significant, with rabi sowing off to a weak start. Low reservoir storage, depleted soil moisture, and drought conditions across several states pose further risks. The food inflation trajectory will therefore hinge on the progress of the kharif harvest and the pace of rabi sowing in the coming months," said Rajani Sinha, Chief Economist at CareEdge Ratings.

The RBI hiked the benchmark policy rate by 0.25 per cent to 5.50 per cent in October, its first hike in nearly four years, while signalling that further rate hikes could follow amid rising inflation, a weak rupee and high crude oil prices.

The sustained rise in inflation could increase the likelihood of monetary tightening, with the RBI potentially raising the benchmark interest rate by 0.25 per cent each in its December and February monetary policy reviews, they said.

"We expect the next few readings to remain elevated above 6 per cent amid adverse base effect from GST, higher food prices and partial pass-through of higher commodity prices," said Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank.

Aditi Nayar, Chief Economist at ICRA, expects CPI inflation to average 6.2 per cent in the October-December quarter of FY27, marginally higher than the Monetary Policy Committee's (MPC) projection of 6 per cent for the quarter.

Inflation is expected to ease modestly thereafter as the adverse base effect dissipates, she said.

Retail inflation surged to 6.09 per cent in October, breaching the upper limit of the tolerance band set for the RBI for the first time in two years, driven primarily by a sharp rise in food prices.

Food inflation accelerated to 8.94 per cent in October from 7.74 per cent in September, according to data released by the Ministry of Statistics and Programme Implementation.

Food prices continued to be a major contributor to the inflationary pressures, with onions, garlic, ginger and lemons witnessing particularly sharp price increases.

Of the 12 categories covering goods and services, 11 recorded an increase in inflation during the month.

Inflation in restaurant and accommodation services stood at 10.06 per cent, while food and beverages (F&B) recorded 8.51 per cent. Personal care and miscellaneous goods and services saw inflation at 10.14 per cent.

Among individual items, onion prices recorded the highest inflation at 116.22 per cent, followed by garlic at 60.74 per cent, silver jewellery at 52.39 per cent, ginger at 48.32 per cent and lemon at 47.30 per cent.

Economists expect food inflation to remain elevated in the coming months, citing weather-related risks that could affect crop production and supplies.

"Domestically, weather-related risks remain significant, with rabi sowing off to a weak start. Low reservoir storage, depleted soil moisture, and drought conditions across several states pose further risks. The food inflation trajectory will therefore hinge on the progress of the kharif harvest and the pace of rabi sowing in the coming months," said Rajani Sinha, Chief Economist at CareEdge Ratings.

The RBI hiked the benchmark policy rate by 0.25 per cent to 5.50 per cent in October, its first hike in nearly four years, while signalling that further rate hikes could follow amid rising inflation, a weak rupee and high crude oil prices.