India October inflation tops RBI's 6% limit, strengthens case for rate hikes

NEW DELHI: India’s retail inflation surged in October to 6.09%, breaching the central bank’s upper tolerance limit for the first time under the new series, as rising food prices drove up household costs and bolstered bets of further rate hikes.

Economists had expected inflation to rise to 5.93% in October, according to a Reuters poll, from 5.54% in September. It has now remained above the Reserve Bank of India’s 4% medium-term target for five consecutive months.

India’s headline retail inflation last breached the RBI’s 6% limit in October 2024, when it rose to 6.2%, according to the previous CPI series with a 2012 base year.

The acceleration was driven largely by food prices, which account for nearly 40% of India’s consumer price index.

Food inflation rose to 8.94% in October from 7.74% in September as prices of staples such as onions, garlic and ginger climbed.

Rising inflation prompted the RBI to join its global peers in raising its benchmark repo rate last month for the first time in nearly four years, citing elevated inflation expectations and broadening of price pressures.

India inflation jumps to 5.54% in Sept, strengthening case for further rate hikes

Minutes of the rate-setting committee’s meeting indicated that further rate hikes may be needed to contain inflation but policmakers stopped short of endorsing an aggressive tightening cycle, citing risks to economic growth.

The RBI now expects inflation to average 6% in the October-December quarter and has raised its forecast for the current financial year to 5.2% from 5% earlier.

RBI Governor Sanjay Malhotra warned that a weak monsoon and strong El Nino conditions pose risks to agriculture and rural demand, although ample foodgrain stocks and government measures are expected to cushion the impact.

Brent crude futures have fallen to around $92 a barrel, offering some relief to the inflation outlook as markets weigh hopes of de-escalation in the US-Iran war against concerns over attacks on shipping in the Strait of Hormuz.

Transport inflation accelerated to 5.84% in October from 5.01% a month ago.