Shoppers gather at New Market in Kolkata, India, ahead of the Durga Puja festival on September 21, 2026.
Null Photo | Null Photo | Getty Images
India’s headline inflation rate rose to 5.54% in September from 4.82% in August, increasing pressure on the country’s central bank to further tighten monetary policy.
According to a Reuters poll, the consumer price index rose slightly above economists’ expectations of 5.40%. Inflation has risen for the 11th straight month in the world’s fastest-growing economy, hitting a 22-month high in September.
India’s food inflation rate rose by 7.74% in September from 5.97% in the previous month, with prices rising faster in rural areas than in urban areas, India’s Ministry of Statistics and Program Implementation said in a statement on Monday. According to the announcement, transport services for goods inflation rose by 14.73%, and transport services for personal transport rose by 7.46%.
Earlier this month, the Reserve Bank of India raised interest rates for the first time since 2023, joining several major central banks in tightening monetary policy to stem rising inflation. India’s central bank also said that further rate cuts were “off the table in the short term” in the “current situation” and that policy action could be either a rate hike or a interest rate holiday.
Inflation risk increases
India is one of the countries most vulnerable to supply disruptions caused by the Iran war. It imports nearly 85% of its fuel needs, and before the Iran war was heavily dependent on energy supplies through the Strait of Hormuz.
Oil prices are soaring due to the tense situation in the Middle East. However, experts predict that prices will remain volatile in the short term due to concerns about conflicts in the Middle East and the impact of Hurricane Isaias.
The central bank of India expects core inflation to be 4.4% and headline inflation to be 5.2% in the fiscal year ending March 2027, which is higher than the RBI’s medium-term target of 4%.
The RBI raised its forecast for India’s economic growth by 40 basis points to 7.1%, but warned that prolonged geopolitical tensions, trade tensions, tightening financial conditions and rising global commodity prices are likely to weigh on economic activity.
Food prices in particular and India’s rural economy also face additional risks from Super El Niño. The country’s June-to-September period has seen its lowest rainfall in more than a decade, a critical season for farms and reservoirs that are largely rain-fed.
It was the fourth lowest rainfall since 2001 and the 13th driest since 1901, according to the India Meteorological Department. Several parts of major agricultural states such as Maharashtra, Andhra Pradesh, Punjab and Haryana are facing extreme drought.
HSBC said in a report on October 7 that it expects another rate hike in December, a day after the RBI’s policy action. “This may not be a deep tightening cycle, but it is a tightening cycle,” the analysts said, adding that retail inflation data for September was likely to show “significant headline gains.”
