Inflation rate in India crosses 6% limit, bank rates likely to rise

According to data released by the National Statistics Office (NSO), India's retail inflation rate rose to 6.09% in October, crossing the upper limit of 6% set by the Reserve Bank of India (RBI). This increase has strengthened the possibilities of a hike in interest rates during the banking meeting in December.

India's benchmark inflation rate, measured by the Consumer Price Index (CPI), stood at 6.1% in October. These figures indicate that inflation is becoming widespread, although food prices remain one of its primary causes. Headline inflation has been seen increasing every month since November 2025, and in June this year, it surpassed the RBI's actual target of 4%.

Monthly inflation was recorded in 11 out of the 12 main categories of the CPI basket. Only the personal care, social protection, and miscellaneous goods category did not see an increase, although this category recorded the highest inflation compared to other categories in the basket.

The food and beverages category, which holds a 37% share in the CPI basket, recorded 8.51% inflation in October, compared to 7.36% in September. In January 2026, this figure was 2.1%, which is the earliest month of available comparative data. Detailed data for the food and beverages category showed that eight out of nine food categories and six out of seven beverage categories saw higher inflation than in September. Among food categories, sugar, confectionery, and desserts recorded the highest inflation at 13%.

According to data from the Centre for Monitoring Indian Economy (CMIE), core inflation (the non-food and non-fuel component of the CPI basket, considered less affected by seasonal changes) remained at 4.6%. The RBI's Monetary Policy Committee (MPC) noted the rising trend of core inflation in its October resolution and kept its estimate at 4.4% for the entire financial year. The MPC has estimated headline CPI inflation at 5.2% for this financial year, while estimates for the quarters ending December 2026 and March 2027 are 6% and 5.7% respectively.

Transport inflation, which includes the fuel sub-category, is also continuously increasing and reached 5.8% in October. However, fuel inflation has remained stable at 7.6% since June as the government has not made any changes to petrol and diesel prices during this period.

According to a survey of Bloomberg economists, inflation was predicted to be 6%, which is close to the current figures. Rajani Sinha, chief economist at CareEdge Ratings, stated in a note that CPI inflation is estimated to peak in the third quarter of financial year 2027 and will remain around an average of 5.0% for the whole year. Given the rising inflation expectations and widespread price pressures, there is a possibility of a 25 basis point increase in the December policy meeting.

Astha Goodwani, chief economist at Barclays India, stated in her research note that she believes inflation has largely peaked and upcoming CPI figures may soften, but they will remain at high levels, which will open the way for limited increases for the MPC. She expects a 25 basis point increase in the December meeting, followed by a final 25 basis point increase in February 2027, which will bring the repo rate to 6.00%.

The Reserve Bank of India is India's central bank that manages the country's monetary policies and determines interest rates and financial regulations to maintain financial stability.