September’s retail inflation, at 5.54%, an almost two-year high, marks the fourth consecutive month that price increases have kept headline CPI above the Reserve Bank of India’s (RBI) 4% target. The impact has been particularly severe for rural Indians, whose inflation rate reached 6.08%. Rural food inflation rose almost two percentage points between August and September, touching 8.06%. Onion (108.09%), garlic (54.62%) and ginger (62.85%) drove the surge, even as potato (-11.50%) and tomato (-8.62%) prices remained below year-earlier levels. The festive season ahead will be expensive for rural households already facing the uncertainties of a deficient monsoon, El Niño-related risks to harvests and incomes, and unusually high temperatures. Headline CPI is now just 0.46 percentage points below the RBI’s upper tolerance limit of 6%. The Monetary Policy Committee raised the repo rate by 25 basis points to 5.50% in October, ending a pause that began after its previous increase in February 2023. Another increase in December cannot be ruled out if price pressures continue to broaden. Chief among the factors driving inflation since the U.S.-Israeli war on Iran have been fuel, food and transport, compounded by a depreciating rupee.
The Indian crude basket, according to the Petroleum Planning and Analysis Cell, rose from $82.04 a barrel in July to $116.09 in September — a 41% increase — with economy-wide implications for freight, production and distribution. The RBI’s special dollar facility for oil marketing companies may ease spot-market pressure on the rupee, but only temporarily if the underlying import dependence and geopolitical risks persist. The crucial subgroup, transport services for goods, recorded inflation of 14.73% in September, up from 14.64% in August. Restaurant and accommodation services inflation has reached 9.36%, while inflation in personal care, social protection and miscellaneous goods and services, which include precious metals, has moderated to 13.75%. Core inflation, excluding food and fuel but including precious metals, rose to 4.6% in September from 4.16% in August, suggesting that price pressures are broadening. Foreign portfolio investors (FPIs) have pulled a record ₹3.08 trillion ($32.73 billion) out of Indian equities in the nine months ending September this year, which is almost double that of the whole of CY2025. FPIs have been net sellers in six of the past nine months as they seek safe havens, stronger dollar-denominated returns, and bond yields. Selling resumed in October, adding to pressure on the rupee, which weakened by about 7% against the dollar over the year to early October, despite RBI interventions such as direct dollar sales and attracting foreign-currency inflows. The central bank’s latest steps have helped the rupee recover, but cannot resolve the underlying pressures. With crude prices elevated, the rupee vulnerable and no clear end to the West Asia conflict, imported inflation is likely to continue shaping domestic prices in the months ahead.
Published - October 14, 2026 12:20 am IST