Onion was the biggest contributor with an inflation rate at 108%, while for ginger it was around 88%, garlic at around 55% and lemon at 36%. | Photo Credit: REUTERS/AMIT DAVE

The base effect, combined with rising food prices, pushed retail inflation, measured by the Consumer Price Index (CPI), to a 21-month high of 5.54 per cent in September, according to government data released on Monday. This is close to the upper end of the targeted inflation range of 2-6 per cent.

Inflation was 4.83 per cent in August this year and 1.54 per cent in September last year. Experts expect inflation to rise further in the coming months, setting the stage for more rounds of policy interest rate hikes by the Monetary Policy Committee. Earlier this month, the rate was hiked after a 4-year gap.

Inflation broadens across sub-groups

“11/12 sub-groups recorded higher inflation in September 2026, indicating generalization of inflation,” said Devendra Pant, Chief Economist at India Ratings & Research. Further, food, fuel, and their user-groups remained significant contributors. Discretionary spending reflected mixed performance. “Inflation is on increasing trajectory from November 2025, and fourth consecutive month of more than 4 per cent inflation,” he said.

Some economists feel that while the base effect played its role, other factors weighed more. “While the low base amplified the headline print, the sequential pickup in food prices suggests that the rise was not entirely base-driven,” Sujan Hajra, Chief Economist at Anand Rathi Group, said. Now the expectation is that the same combination will play a big role in the coming months.

Food prices and fuel pressures add to inflation

“Food inflation continued to quicken, driven by a broader set of sub-segments amid below-normal rainfall, imported price pressures and derivative fuel impacts,” Radhika Rao, Senior Economist at DBS Bank, said. Further, fourth-quarter 2026 pressures will be under watch. A low base, along with higher food, fuel and services inflation, is set to lift headline prints, tracking closer to 6 per cent, she added.

RBI rate hikes in focus as inflation nears 6 per cent

With headline inflation touching the upper end of the targeted range, all eyes are on the Monetary Policy Committee (MPC). Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, expects inflation to trend higher than 6 per cent over the next few months as adverse base effects and food price shocks play out. RBI’s revised inflation estimates remain realistic. “We expect an additional 50bp of repo rate hike, with upside risks likely if geopolitical risks do not subside,” she said.

December MPC meeting may bring another hike

Experts expect the December MPC meeting to deliver the next round of hikes. “The sharp pickup reinforces the RBI’s hawkish turn, following its 25-bps hike in October, with markets now pricing a further hike at the December MPC,” said Rajeev Sharan, Head of Research at Brickwork Ratings, while expecting headline inflation to stay elevated around 5.5-6.5 per cent in the coming months, with food as the key swing factor. “From a credit-risk lens, sticky food inflation alongside rising rates could strain household budgets and retail-loan servicing, though a contained core keeps broader risks moderate,” he concluded.

Published on October 12, 2026