Inflation is settling in. Now for the interest rate hike

In situations like this, market intelligence and timing matter. Delayed decision-making ultimately has both economic and political costs -- which the government would want to avoid

If inflation, especially food, is the biggest risk to the economy today — derailing an otherwise visible consumption and investment momentum — the policy responses have to be appropriate.

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3 min readNov 14, 2026 06:40 AM IST First published on: Nov 14, 2026 at 06:40 AM IST

The latest consumer price index (CPI) numbers for October— a year-on-year increase of 6.09 per cent overall and 8.94 per cent for food — carry a sobering message. Retail inflation, the highest since the 6.21 per cent of October 2024 and above the Reserve Bank of India’s (RBI) 6 per cent upper tolerance limit, is getting generalised. This is even more so in food, where the annual price rise is the highest since the 9.04 per cent of November 2024. The generalisation of inflation — businesses progressively passing through higher costs to consumers — is borne out, for example, by the expenses of eating out: In January 2026, inflation in “food and beverage serving services” in restaurants was just 2.88 per cent. Nine months on, that annual rate was 10.09 per cent, a reflection of costlier cooking fuel and food feeding on one another.

For the RBI, the choices are limited. It isn’t whether but how much to raise interest rates at its Monetary Policy Committee meeting early next month. If price pressures are elevated and broadening, as they seem to be, a mere 25 basis point hike in its current policy repo rate of 5.5 per cent may not be enough. True, Brent crude prices have softened to $95-96 per barrel, from the $118 levels of October-end. The rupee, too, has strengthened to 94.2-to-the-dollar after threatening to breach the 97-mark early last month. But that comfort on the external front — thanks to renewed hopes of diplomatic resolution to end the conflicts in Iran and Ukraine — is being offset by the effects of El Niño. India’s last episode of high food inflation during July 2023 to December 2024, when it averaged over 8.5 per cent year-on-year, was courtesy of a “strong” El Niño event. The present one is “super strong” and forecast to persist through January-March 2027.

If inflation, especially food, is the biggest risk to the economy today — derailing an otherwise visible consumption and investment momentum — the policy responses have to be appropriate. While the RBI can do its part to anchor inflation expectations on the demand side, the government has an equal role through supply-side management. Given that virtually every agricultural item today — be it edible oils, pulses and milk or maize, cotton and sugar — is domestically supply-constrained, allowing imports at low, if not nil, duties should be a no-brainer. In situations like this, market intelligence and timing matter. Delayed decision-making ultimately has both economic and political costs — which the government would want to avoid.