By Shubham Batra and Shivangi Acharya
NEW DELHI, Nov 12 (Reuters) – India’s retail inflation surged to 6.09% in October, breaching the central bank’s 6% limit for the first time under the new series, as rising food prices squeezed household budgets and raised bets on further rate hikes.
Economists had forecast inflation to rise to 5.93% in October, according to a Reuters poll, from 5.54% in September.
The October print 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.
Inflation has stayed above the Reserve Bank of India’s 4% medium-term target for five straight months, last breaching its 6% limit in October 2024, when it hit 6.2% under the previous CPI series based on 2012 prices.
“The data reinforces our expectation of a second successive rate hike in December,” said Radhika Rao, senior economist and executive director at DBS Bank, adding that the headline inflation is yet to peak.
Last month, rising inflation prompted the RBI to join its global peers in raising its benchmark repo rate for the first time in nearly four years, citing elevated inflation expectations and broadening of price pressures.
Minutes of the rate-setting committee’s meeting indicated that further rate hikes may be needed to contain inflation but policymakers stopped short of endorsing an aggressive tightening cycle, citing risks to economic growth.
The policy rate stands at 5.50% after the hike.
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.
PRICE PRESSURES WIDENING
Inflationary pressures broadened in October, with 19 of 43 sub-groups in the index recording inflation of 4% or higher, compared with 14 in September.
Beyond food, higher inflation was led by transport-related costs, clothing, housing and food-serving services.
“Inflation is likely to print above 6% until June 2027. The numbers increase the risk that policy rates may need to rise above the estimated neutral rate of 6%,” said Tanay Dalal, economist at Axis Bank.
(Reporting by Shubham Batra and Shivangi Acharya in New Delhi, additional reporting by Jaspreet Kalra in Mumbai; Editing by Nivedita Bhattacharjee)
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