Retail Inflation Projected to Breach 6% in October on Rising Food Prices

October's consumer price index (CPI) retail inflation is expected to cross the 6 per cent threshold, driven by a persistent rise in food prices. If official data confirms this projection when the Statistics Ministry releases it on November 12, it will mark the first breach of the Reserve Bank of India's (RBI) upper target band since October 2024 and the 28th instance since flexible inflation targeting was adopted on June 27, 2016. Headline inflation previously rose to a 23-month high of 5.5 per cent in September, up from 4.8 per cent in August, fueled by increases across food, fuel, and core components.

High-frequency data from the RBI bulletin covering October 1–19 indicates a broad-based increase in food prices. Rice and wheat prices continued to climb, major pulses saw sequential price increases, and edible oils such as mustard and palm oil recorded a slow, broad-based rise. Among vegetables, while potato prices declined and onion price increases slowed, tomato prices picked up. Inflationary expectations for food are showing an upward trend influenced by the El Nino impact. Data from the Agriculture Minister shows that rabi sowing as of October 30 was down by 46 per cent compared to the previous year, and expectations from kharif harvesting remain subdued.

ICRA expects headline CPI inflation to harden to 6.1 per cent in October, crossing the upper limit of the Monetary Policy Committee's (MPC) target range, partly due to an unfavourable base from GST rationalisation. According to Aditi Nayar, Chief Economist at ICRA Ltd., food and beverages inflation is set to cross 8 per cent in October, while core-CPI inflation is expected to rise to 4.6 per cent from 4.3 per cent in September. ICRA projects CPI inflation to average 5.2 per cent in FY2027, with H2 FY2027 readings centred around 5.9 per cent. If recent cooling in global crude oil prices sustains, it could limit the need for oil marketing companies to hike retail petrol and diesel prices further.

Meanwhile, wholesale inflation based on the Wholesale Price Index (WPI) surged to 11.4 per cent in September due to higher food prices, leading to concerns about potential transmission into retail inflation. However, Barclays India Chief Economist Aastha Gudwani and Economist Amruta Ghare noted that while the direct and immediate impact from WPI to CPI may be moderate, upside risks remain. These risks include potential pump price hikes for petrol and diesel if crude oil prices stay elevated, a disappointing rabi harvest impacting food prices in FY27-28, and faster price pass-through by firms following initial margin compression in high-demand sectors.

With inflation trends potentially breaching the RBI's upper tolerance band, analysts suggest that a policy rate hike could come under consideration when the MPC meets in December.

"A breach of the RBI's upper inflation threshold signals tightening monetary conditions that can directly impact business input costs, consumer spending power, and corporate capital planning. For growing companies and startups, rising food and operational costs mean that financial forecasting and cash flow management must factor in potential interest rate adjustments and tighter credit environments in the coming months." — Dr. Shishir Gupta, Founder & CEO, StartupLanes