India's retail inflation has soared to a two-year high of 6.09 per cent in October, breaching the Reserve Bank of India's mandated upper tolerance limit of 6 per cent and setting the stage for critical monetary policy decisions. The figure, released by the Ministry of Statistics and Programme Implementation on Thursday, is the highest reading in about two years.
Retail inflation, measured by the Consumer Price Index (CPI), rose to 6.09 per cent in October from 5.54 per cent in September, a 55-basis-point jump in a single month. It is the first time the headline number has crossed the RBI's comfort band since October 2024, when it stood at 6.21 per cent, and the highest print under the new CPI series, which has a 2024 base year and was introduced in January this year.
Food prices were the main driver of the increase. Food inflation, measured by the Consumer Food Price Index, spiked to 8.94 per cent in October from 7.74 per cent in September, as a sustained uptick in food and beverages, restaurant services and transport inflation pushed up the headline number. Economists expect food and beverages inflation to remain above 8 per cent in November, with milk, sugar and onions continuing to exert upward pressure.
The October reading marks the ninth consecutive monthly increase in retail inflation in 2026, with the headline rate more than doubling from 2.74 per cent in January. Inflation has now stayed above the Reserve Bank's 4 per cent medium-term target for five straight months, and the central bank is mandated to keep it within a band of 2 to 6 per cent until March 2031.
The data is a key input ahead of the RBI's monetary policy committee meeting scheduled for 2 to 4 December, and economists now expect the central bank to raise interest rates again. The RBI hiked its benchmark policy rate by 0.25 per cent to 5.50 per cent in October, its first hike in nearly four years, while signalling that further rate hikes could follow amid rising inflation, a weak rupee and high crude oil prices.
ICRA, the ratings agency, expects CPI inflation to average around 6.2 per cent in the third quarter of the current financial year, slightly higher than the Monetary Policy Committee's projection of 6 per cent, and to remain around 6.1 per cent in November, with core inflation likely to rise further. The agency said inflation was likely to print above 6 per cent until June 2027.
The RBI itself expects inflation to average 6 per cent in the October-December quarter and forecasts it at 5.2 per cent for the current financial year, with core inflation averaging 4.4 per cent. But with the October reading above the band, the print adds pressure on the central bank ahead of its December policy review.
A day before the October inflation data came out, SBI Mutual Fund warned that price pressures could persist, saying in its November 2026 Market Outlook that headline CPI was expected to average almost 5.8 per cent over the next three quarters, with a material risk of breaching the 6 per cent threshold.
For Indian households, the numbers mean the cost of living is rising faster than it has in two years, with food — the largest part of most family budgets — leading the increase. For the central bank, the challenge is to bring inflation back within its tolerance band without choking off growth, a balance that will be tested again at the December meeting.
The October inflation figures will be watched closely by markets in the coming weeks, with the December rate decision now firmly in focus. If the RBI does raise rates again, it will be the second hike in three months — a clear sign that the central bank sees the inflation threat as serious and persistent.
