Inflation seen hitting RBI's 6% ceiling in October, putting rate policy in focus

Rising food prices and an unfavourable base effect are expected to push inflation to the RBI’s upper tolerance limit of 6% for the first time in two years.

India’s retail inflation is likely to hit 6% in October, a two-year high that would push the Reserve Bank of India (RBI) to keep interest rates elevated and possibly raise them again in December.

The Consumer Price Index is projected to rise 6%, from 5.5% in September, according to a Mint poll of 15 economists. If the forecast holds, inflation would breach the RBI’s upper tolerance limit of 6% for the first time since October 2024. Economists’ estimates range from 5.9% to 6.2%. Official data is scheduled to be released on 12 November. The increase is expected to be driven primarily by food prices and an unfavourable base effect.

Elevated oil and commodity prices are adding to inflationary pressures, potentially raising the prospect of another rate increase in December. The central bank raised the benchmark repo rate by 25 basis points in its October policy review.

Expectations of higher interest rates have also pushed yields on the benchmark 10-year government bond to a four-year high in late October. Although Brent crude prices have eased on expectations of a de-escalation in West Asia tensions, they remain elevated. Drought conditions in several parts of the country could add to price pressures.

“We expect the RBI to hike policy rates by 25 bps. We don’t see the need for a bigger, 50 bps hike in December as rupee/dollar exchange rate has stabilized post the central bank measures” said Gaura Sengupta, chief economist at IDFC First Bank.

High food inflation

The food and beverages division, which accounts for a significant share of the consumer inflation basket, is expected to record inflation of more than 8% in October, according to Icra. The increase is likely to be broad-based across food sub-segments, said Aditi Nayar, chief economist at Icra.

“Part of the increase in headline inflation is also attributable to the unfavourable base following the rationalisation of goods and services tax (GST),” Nayar said.

The expected increase marks a departure from the relatively benign inflation environment towards the end of 2025, when retail inflation fell to 0.04% in October. Since then, inflation has steadily firmed up, with food prices playing an increasingly important role.

In its October monetary policy review, the RBI turned more cautious about the inflation outlook, raising its inflation projection for 2026-27 to 5.2% from 5% earlier. The central bank cited deficient monsoon rainfall, ongoing El Niño conditions and elevated energy and commodity prices as risks to the outlook.

The RBI expects inflation to average 6% in October-December before moderating to 5.7% in January-March. Its projection for core inflation for the full financial year stands at 4.4%.

The Monetary Policy Committee (MPC) also flagged the broadening of food price pressures, including sharp increases in items such as sugar and onions. It warned that the continued pass-through of higher energy and commodity prices could add to supply-side inflationary pressures.

Against this backdrop, the MPC unanimously voted to raise the repo rate by 25 basis points to 5.5% and shifted its policy stance to calibrated tightening. The change signals that rate cuts are unlikely in the near term, with future decisions depending on how growth and inflation evolve.

With food inflation expected to remain elevated in the coming months, the trajectory of prices following the kharif harvest and any moderation in energy costs will be key to determining whether headline inflation retreats from its October levels.

The increase is expected to be led by food prices, which have risen across several categories. “Inflation will be mainly driven by food prices which have shown a rise. This will continue for the next few months too, being aligned to the kharif harvests of various crops,” said Madan Sabnavis, chief economist at Bank of Baroda.

The increase in headline inflation will also reflect an unfavourable base effect, alongside continued pressure from food prices.

This also marks a departure from the relatively benign inflation environment seen towards the end of 2025, when retail inflation had fallen to a historic low of 0.04% in October. Since then, inflation has steadily firmed up, with food prices playing an increasingly important role. A print of 6% would leave the central bank with less room to ease monetary policy even as it seeks to support economic growth.

In its October monetary policy review, the RBI turned more cautious about the inflation outlook. The Monetary Policy Committee (MPC) raised its inflation projection for 2026-27 to 5.2% from 5% earlier, citing deficient monsoon rainfall, ongoing El Niño conditions and elevated energy and commodity prices. The central bank expects inflation to average 6% in October-December before moderating to 5.7% in January-March. Its projection for core inflation for the full financial year stands at 4.4%.

The MPC also noted that food price increases had become more broad-based, with sharp increases in certain items such as sugar and onions. It also flagged the continued pass-through of higher energy and commodity prices as a source of supply-side inflationary pressure.

Against this backdrop, the MPC unanimously voted to raise the repo rate by 25 basis points to 5.5% and changed its policy stance to calibrated tightening. The stance signals that rate cuts are off the table in the near term, with future action dependent on the evolving growth and inflation outlook.

With food inflation expected to remain elevated in the coming months, the trajectory of prices after the kharif harvest and the extent of moderation in energy costs will be important in determining whether headline inflation eases from its October levels.

About the Author

Payal Bhattacharya is a data journalist at Mint, and writes analytical stories for the Plain Facts section. She has over nine years of experience covering the Indian economy. Her work focuses on core macroeconomic indicators such as GDP, inflation, employment and the labour market, the informal sector, and government policies. She holds a Master’s degree in Economics, which underpins her ability to interpret official data releases, identify larger trends, and explain what they mean to the lay reader in practical terms. She closely tracks data like the national accounts, inflation indices, and labour surveys to produce clear, evidence-based reporting. Known for her clarity and precision, Payal focuses on presenting facts in a straightforward and accessible manner. Her stories place strong emphasis on data credibility, consistency, and context, aiming to help readers understand not just the numbers but also their real-world implications. She is particularly attentive to gaps and limitations in datasets, and highlights them in her stories when relevant. Committed to accuracy and transparency, Payal ensures her work remains a reliable resource for readers seeking to make sense of India’s economic realities.