Inflation tops RBI’s 6% ceiling, raises December rate hike prospects

India’s retail inflation rose to a two-year high of 6.09% in October, breaching the Reserve Bank of India’s upper tolerance limit of 6% and strengthening expectations of another rate hike in December. Headline inflation has risen every month since November 2025 and had crossed the RBI’s actual target of 4% in June this year.

Economists at CareEdge Ratings and Barclays India expect the RBI's Monetary Policy Committee to raise the rate by 25 basis points at its December meeting. (Reuters/File)The latest reading, driven by both food and non-food prices, was largely in line with expectations.

A Bloomberg poll of economists had predicted inflation at 6%. India’s benchmark inflation rate, measured by the Consumer Price Index (CPI), rose 6.1% in October, according to data released by the National Statistics Office (NSO).

The reading indicates that inflation is becoming broad-based, even as food remains its primary driver. Monthly inflation increased in 11 of the 12 major categories of the CPI basket. The only exception was personal care, social protection and miscellaneous goods, a category that nevertheless continued to record the highest inflation in the basket.

Food and beverages, which account for 37% of the CPI basket, recorded inflation of 8.51% in October, up from 7.36% in September. The number was 2.1% in January 2026, the earliest month for which comparable data is available.

Disaggregated data for the food and beverages category showed that eight of the nine food categories and six of the seven beverage categories recorded higher inflation than in September. Among food categories, sugar, confectionery and desserts recorded the highest inflation at 13%.

Core inflation – the non-food, non-fuel component of the CPI basket, which is considered less susceptible to seasonal fluctuations – stood at 4.6%, according to data from the Centre for Monitoring Indian Economy (CMIE). The RBI’s Monetary Policy Committee (MPC) noted the rising trend in core inflation in its October resolution and projected it at 4.4% for the full financial year.

The MPC’s latest projection for headline CPI inflation is 5.2% for the fiscal year, with quarterly projections of 6% and 5.7% for the quarters ending December 2026 and March 2027, respectively. Transport inflation, which includes the fuel sub-category, has also risen consistently, reaching 5.8% in October.

This was despite fuel inflation remaining unchanged at 7.6% since June, as the government has not revised petrol and diesel prices during this period. While the latest inflation numbers are in line with analyst and RBI expectations, economists believe a rate hike in December is likely.

“CPI inflation is projected to peak in Q3 FY27 and average around 5.0% for the full year. On the monetary policy front, given rising inflation expectations, and broadening price pressures there is a likelihood of a 25-bps rate hike at the December policy meeting”, Rajani Sinha, chief economist at CareEdge Ratings said in a note.

“We believe inflation has mostly peaked and while upcoming CPI prints may soften, they will continue to stay elevated, paving the way for measured hikes by the MPC. We expect the hiking cycle to be rather shallow: We expect a 25bp rate hike by the MPC in its December meeting, followed by a terminal 25bp hike in February 2027, taking the repo rate to 6.00%”, Barclays India chief economist Aastha Gudwani said in a research note.

Shreya Khandelwal is a trainee (data) at Hindustan Times and part of the team that produces Number Theory, a daily data story feature of the paper’s print edition. Her primary responsibility on the team is to cover economic stories using publicly-available datasets.

She also contributes to reporting on the economy for the newspaper's business section. Before joining the Hindustan Times newsroom in June 2026, she completed her MA in Economics from Azim Premji University and BA (Prog.) in Economics and Mathematics from Jesus and Mary College, University of Delhi.

During her master's, she interned at the Centre for Analytical Finance (Indian School of Business), where she provided inputs on the industrial sector for the Telangana Rising 2047 vision project and the Council on Energy, Environment and Water (CEEW) where she worked on industrial pathways in developed and developing countries and foreign trade agreements.Read More