Retail inflation hits two-year high of 6.09% in October, breaches RBI's 6% limit; December rate hike likely

India's retail inflation climbed to a two-year high of 6.09% in October 2026, breaching the Reserve Bank of India's (RBI) upper tolerance limit of 6%, as rising food prices and broader cost pressures pushed up household expenses. The latest inflation print has strengthened expectations of another interest rate hike when the central bank announces its monetary policy decision on December 4.

Inflation, measured by the Consumer Price Index (CPI), accelerated from 5.54% in September and exceeded expectations of 6%. The increase signals mounting price pressures across food, clothing, housing and several services.

Food inflation remained the biggest concern. The Consumer Food Price Index (CFPI) surged to 8.94% in October from 7.74% in September, surpassing the poll estimate of 8.5%.

Rural food inflation reached 9.09%, compared with 8.68% in urban areas, according to provisional government data.

Rural and urban inflation rise

The acceleration extended beyond food prices. Overall rural inflation increased to 6.63% in October from 6.08% in September, while urban inflation rose to 5.41% from 4.88%.

Restaurant and accommodation services recorded inflation of 10.06%, up from 9.36%. Clothing and footwear inflation climbed to 4.96% from 3.93%, while housing inflation edged up to 2.90% from 2.74%.

Health inflation increased to 2.05% from 1.40%, and information and communication services inflation rose to 3.16% from 2.44%.

However, inflation in personal care, social protection and miscellaneous goods and services moderated to 10.14% from 13.75%.

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Will RBI hike interest rates in December?

The October inflation data is the final CPI reading available before the RBI's December 4 monetary policy announcement.

The central bank targets inflation at 4%, with a tolerance band of 2–6%, and has projected inflation at 6% for the third quarter of FY27.

Economists believe persistent inflationary pressures could prompt another rate increase.

Vikram Chhabra, Senior Economist, 360 ONE Asset, said: "We are seeing clear signs of broadening inflationary pressures, with higher energy and raw material costs passing through to core inflation. In addition, food price inflation is picking up, with further upside risks stemming from the impact of weak reservoir levels on the rabi crop."

He expects inflation to remain above 6% over the coming months and anticipates another 25-basis-point rate hike, although falling crude prices and rupee appreciation could provide some relief.

Radhika Rao, Senior Economist and Executive Director, DBS Bank, said the sharp food-driven increase, accompanied by broader price pressures, could force the RBI to revise its inflation projections higher.

"The data reinforces our expectation of a second successive rate hike in December," Rao said.

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Tanay Dalal, SVP – Business & Economic Research, Axis Bank, warned that inflation could remain above 6% until June 2027.

"The numbers increase the risk that policy rates may need to rise above the estimated neutral rate of 6%," Dalal said.

A December rate hike could increase borrowing costs for households and businesses, particularly for floating-rate loans, while potentially benefiting depositors through higher interest rates.

The RBI's decision will depend on whether inflation remains elevated and how policymakers assess growth risks. November CPI data is scheduled for release on December 14.

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