Shoppers gather at the New Market in Kolkata, India, on September 21, 2026, ahead of the Durga Puja festival.
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India’s headline inflation rose to 5.54% in September from 4.82% in August, increasing pressure on the country’s central bank to tighten monetary policy.
The consumer price index print slightly exceeded economists’ expectations of 5.40%, according to a Reuters poll. Inflation has risen for 11 consecutive months in the world’s fastest-growing economy and hit a 22-month high in September.
India’s food inflation rose 7.74% in September from 5.97% the previous month, with prices rising faster in rural areas than cities, India’s Ministry of Statistics and Program Implementation said in a release on Monday. Transport services for freight inflation increased by 14.73% while for private transport it increased by 7.46%, according to the release.
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 in an effort to curb accelerating inflation. India’s central bank also said that in “current circumstances” further rate cuts are “off the table in the near term” and that policy action could be either a rate hike or a pause.
The risk of inflation 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 war Iran was heavily dependent on energy supplies through the Strait of Hormuz.
Oil prices have risen due to tensions in the Middle East. However, experts predict that prices will remain volatile in the near term due to concerns about the Middle East conflict and the impact of Hurricane Isaias.
India’s central bank expects core inflation to be 4.4% for the financial year ending March 2027 and headline inflation at 5.2%, which is higher than the RBI’s medium-term target of 4%.
The RBI raised India’s economic growth forecast by 40 basis points to 7.1% but warned that ongoing geopolitical tensions, trade frictions, tightening financial conditions and rising international commodity prices will weigh on economic activity.
Food prices in particular and India’s rural economy also face additional risks from the Super El Nino, with the country receiving the lowest rainfall in more than a decade during June to September, an important season for farms and rain-fed reservoirs.
It was the fourth lowest rainfall since 2001, and the 13th driest since 1901, according to the India Meteorological Department. Some parts of major agricultural states such as Maharashtra, Andhra Pradesh, Punjab, and Haryana are facing extreme drought conditions.
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,” analysts said, adding that September retail inflation data is likely to show “pop headline size.”