As inflation inches upwards, can rate hike be far behind?

To what extent the committee tightens over the coming months will depend on its expectations of how inflation will evolve going forward.

2 min readOct 14, 2026 06:05 AM IST First published on: Oct 14, 2026 at 06:05 AM IST

Retail inflation continues to inch upwards, rising to 5.54 per cent in September, up from 4.83 per cent in August, according to data from the National Statistics Office. With this print, inflation came in at 4.9 per cent in the second quarter, in line with the central bank’s most recent projection. Much of the increase in the headline inflation number is being driven by food prices. But price pressures are being felt in non-food categories as well. And with expectations of inflation firming up in the months ahead, it increases the odds of a tighter monetary policy.

Food inflation has surged to 7.74 per cent in September, up from 6 per cent in August, driven by items such as onions, ginger, garlic and lemon. The FAO food price index has also jumped 5.8 per cent, pointing towards an uptick in international prices. Weak rainfall will weigh heavily on output. The outlook remains uncertain. According to Crisil, “concerns over the rabi crop are also mounting amid low soil-moisture levels and elevated temperatures”. Early indicators for October point towards continuing price pressures. Rating agency ICRA expects food and beverage inflation to exceed 8 per cent in October. Alongside, global crude oil prices remain elevated. As on October 12, the price of the Indian crude oil basket was $125.7 per barrel. This will add to the pressures in the economy. Core inflation is also moving upwards to 4.3 per cent, which indicates the pass-through of higher costs. Higher food and cooking fuel prices have kept inflation in the restaurants and accommodation services category elevated.

Over the coming months, inflation is likely to rise further. Economists at SBI have projected CPI at 6.5 per cent in the third quarter and 5.6 per cent in the fourth quarter, while ICRA expects inflation at around 6 per cent in the third quarter. This raises the possibility of another rate hike when the RBI’s Monetary Policy Committee meets next, in the first week of December. While most expect the MPC to hike rates by 25 basis points, some suggest the likelihood of a 50 basis points hike. To what extent the committee tightens over the coming months will depend on its expectations of how inflation will evolve going forward.