Will October inflation breach 6%? What it means for interest rates, EMIs and GDP growth

India’s retail inflation is expected to accelerate to a two-year high in October, potentially touching or breaching the Reserve Bank of India’s (RBI) upper tolerance limit of 6%, driven by rising food prices, deficient monsoon rainfall and broadening commodity price pressures.

The official Consumer Price Index (CPI) inflation data for October is scheduled to be released by the Ministry of Statistics and Programme Implementation (MoSPI) tomorrow, November 12. However, economic growth is expected to remain resilient, with industrial and services activity offsetting weakness in agriculture, according to estimates by Bloomberg Economics, Informist, Nirmal Bang Institutional Equities, SBI Research and BofA Securities.

According to an Informist poll of 12 economists, CPI-based inflation is projected to rise to 6% in October from 5.54% in September. Bloomberg Economics expects inflation to be slightly higher, at 6.1%, while Nirmal Bang also estimates it at 6%. If these projections materialise, it would be the highest retail inflation reading since October 2024.

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Food prices are expected to be the biggest contributor to the increase. India Ratings and Research estimates food inflation at a new-series high of 9.1%, while Bloomberg Economics projects it at 8.8%, up from 7.4% in September. Nirmal Bang expects food inflation to rise to 8.7% from 7.7%, largely due to higher prices of cereals, pulses and edible oils following below-normal rainfall. Meat, eggs and dairy products are also witnessing price pressures due to higher feed costs.

Core inflation, which excludes food and fuel, is also expected to harden. Bloomberg Economics estimates it at 4.5% in October, against 4.3% in September, while Nirmal Bang projects it at 4.7%, compared with 4.6% in the previous month. Meanwhile, wholesale price index (WPI)-based inflation is expected to climb to 12.35% from 11.4% in September, according to Nirmal Bang, reflecting elevated fuel and commodity prices as well as an unfavourable base effect.

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Will rising inflation prompt RBI rate hikes?

The inflation outlook could influence the RBI’s monetary policy trajectory. Bloomberg Economics expects the central bank to raise interest rates in December and February, while Nirmal Bang anticipates another 50 basis points of rate hikes over the next two policy meetings. BofA Securities, meanwhile, expects cumulative rate hikes of 75 basis points over the next six to nine months. However, Nirmal Bang expects the tightening cycle to remain relatively shallow, with CPI inflation projected at 4.5-5% in FY28. The RBI will need to balance rising prices with the need to support economic growth.

GDP growth remains resilient despite inflation concerns

On the growth front, BofA Securities expects India’s Gross Value Added (GVA) growth to remain strong at 8.1% year-on-year in Q2FY27 (Q3CY26), supported by industrial and services activity. It estimates GDP growth at 7.7% in Q2FY27, higher than its initial projection of 7.2%, and projects full-year FY27 growth at 7.4%, followed by 7.5% in FY28.

Industrial momentum has remained strong, with manufacturing growth estimated at 8.1% and Index of Industrial Production (IIP) growth accelerating to 7.3%. Bank credit growth remained around 20%, while consumer durables, automobile sales, power demand and freight activity also showed resilience.

SBI Research is similarly optimistic about the near-term growth outlook. Its assessment, based on 54 high-frequency indicators, projects GDP growth at 7.8% in Q2FY27, above the RBI’s estimate of 7.2%. GVA growth is expected at 8-8.2%, while nominal GDP growth is projected at 11-11.5%.

Corporate performance also points to underlying economic strength. EBITDA and net profit of around 2,300 listed companies, excluding banking, financial services and insurance (BFSI), rose 35% and 33%, respectively, in Q2FY27, according to SBI Research.

However, the report flags risks to agricultural output from El Niño-related rainfall deficiencies. It estimates total agricultural production losses at around 38.6 million tonnes across the Kharif and Rabi seasons, which could weigh on rural demand and agricultural growth.

Nirmal Bang is relatively more conservative, projecting FY27 GDP growth at 7.3%, compared with 7.7% in FY26. It expects industry and services to grow by 7.9% and 8.4%, respectively, while agriculture growth is projected at 3.2%.

However, elevated crude oil prices, geopolitical uncertainty, uneven monsoon distribution and tighter monetary policy remain key risks. The combination of persistent inflation and resilient economic growth will be crucial in determining the RBI’s policy decisions in the coming months.