Retail inflation hits 21-month high, set to squeeze your household budget further
Experts pencil in another rate hike at the December policy review; kharif crop and crude oil prices pose headwinds
- Oct 12, 2026,
- Updated Oct 12, 2026 6:49 PM IST
As the festive season begins, consumers are likely to find shopping more expensive, with retail inflation having touched a 21-month high in September and expected to rise further in the coming months.
Consumer price index-based inflation rose to 5.54% in September from 4.83% in August, official data released on Monday showed. Consumer food price inflation (CFPI) breached the Reserve Bank of India’s tolerance level, rising sharply to 7.74% last month from 5.97% in August this year. Significantly, rural retail inflation was higher at 6.08%, while rural CFPI was even higher at 8.06% last month.
The data showed that while food inflation remained the main driver of price increases, inflation is becoming more generalised. Eleven of the 12 sub-groups recorded an increase in prices, with the personal care group—the only discretionary spending category—being the sole exception.
Experts believe retail inflation is set to rise further in October, driven by an adverse base effect and higher prices. “An adverse base effect for food inflation in October 2025 could push food inflation in October 2026 to 9.1%. Headline inflation in October 2026 is expected to be around 6.0%, with the adverse base effect also contributing to higher inflation,” said Devendra Pant, Chief Economist, India Ratings and Research.
He identified global crude oil prices above $100 per barrel, below-normal rainfall and an adverse base effect as key risks. “However, the recent move by the RBI has resulted in the appreciation of the rupee against the US dollar—a 1% appreciation on October 12, 2026—which is likely to provide some relief from imported inflation,” Pant said.
The RBI is expected to raise rates again by 25 basis points at its December policy review.
Madan Sabnavis, Chief Economist at Bank of Baroda, said the third quarter would be challenging, with inflation expected to peak at 6%. “Therefore, our view still holds that December will warrant another rate hike,” he said.
Industries such as consumer durables, FMCG and automobiles have announced price increases that should be reflected in the CPI over the next few months, he warned. He added that the condition of the kharif crop was also important, as food inflation would be largely driven by it.
At its recent review, the RBI’s Monetary Policy Committee raised its FY27 inflation forecast to 5.2%, projecting inflation at 4.9% in the second quarter, 6% in the third quarter and 5.7% in the fourth quarter. It also increased the repo rate by 25 basis points.
Radhika Rao, Senior Economist and Executive Director at DBS Bank, also noted that the gradual rise in the core inflation gauge aligned with the central bank's view that price risks were no longer benign. “In the face of higher headline prints, we expect the RBI to keep the door open for another rate hike in December 2026,” she said.
Among food items, vegetables and fruits, sugar, ready-made food products, eggs, meat and fish, and edible oils recorded the highest inflation. Four of the five items with the highest inflation in September were food items. Onions recorded the highest inflation at 108.09% in September, while silver jewellery registered an inflation of 87.8%. Meanwhile, ginger recorded inflation of 62.85%, garlic 54.62% and lemons 36.41% last month.
As the festive season begins, consumers are likely to find shopping more expensive, with retail inflation having touched a 21-month high in September and expected to rise further in the coming months.
Consumer price index-based inflation rose to 5.54% in September from 4.83% in August, official data released on Monday showed. Consumer food price inflation (CFPI) breached the Reserve Bank of India’s tolerance level, rising sharply to 7.74% last month from 5.97% in August this year. Significantly, rural retail inflation was higher at 6.08%, while rural CFPI was even higher at 8.06% last month.
The data showed that while food inflation remained the main driver of price increases, inflation is becoming more generalised. Eleven of the 12 sub-groups recorded an increase in prices, with the personal care group—the only discretionary spending category—being the sole exception.
Experts believe retail inflation is set to rise further in October, driven by an adverse base effect and higher prices. “An adverse base effect for food inflation in October 2025 could push food inflation in October 2026 to 9.1%. Headline inflation in October 2026 is expected to be around 6.0%, with the adverse base effect also contributing to higher inflation,” said Devendra Pant, Chief Economist, India Ratings and Research.
He identified global crude oil prices above $100 per barrel, below-normal rainfall and an adverse base effect as key risks. “However, the recent move by the RBI has resulted in the appreciation of the rupee against the US dollar—a 1% appreciation on October 12, 2026—which is likely to provide some relief from imported inflation,” Pant said.
The RBI is expected to raise rates again by 25 basis points at its December policy review.
Madan Sabnavis, Chief Economist at Bank of Baroda, said the third quarter would be challenging, with inflation expected to peak at 6%. “Therefore, our view still holds that December will warrant another rate hike,” he said.
Industries such as consumer durables, FMCG and automobiles have announced price increases that should be reflected in the CPI over the next few months, he warned. He added that the condition of the kharif crop was also important, as food inflation would be largely driven by it.
At its recent review, the RBI’s Monetary Policy Committee raised its FY27 inflation forecast to 5.2%, projecting inflation at 4.9% in the second quarter, 6% in the third quarter and 5.7% in the fourth quarter. It also increased the repo rate by 25 basis points.
Radhika Rao, Senior Economist and Executive Director at DBS Bank, also noted that the gradual rise in the core inflation gauge aligned with the central bank's view that price risks were no longer benign. “In the face of higher headline prints, we expect the RBI to keep the door open for another rate hike in December 2026,” she said.
Among food items, vegetables and fruits, sugar, ready-made food products, eggs, meat and fish, and edible oils recorded the highest inflation. Four of the five items with the highest inflation in September were food items. Onions recorded the highest inflation at 108.09% in September, while silver jewellery registered an inflation of 87.8%. Meanwhile, ginger recorded inflation of 62.85%, garlic 54.62% and lemons 36.41% last month.