India’s retail inflation rises to 5.54% in September as food prices accelerate. (Img: X)
New Delhi: India’s retail inflation accelerated to 5.54% in September, rising from 4.83% in August, as a sharp increase in food prices added to mounting price pressures just days after the Reserve Bank of India (RBI) raised its benchmark interest rate. The latest figures signal a growing challenge for the central bank as inflation moves further above its medium-term target of 4% and approaches the upper limit of its permissible range.
Data released by the Ministry of Statistics and Programme Implementation (MoSPI) on Monday showed that the latest increase was driven substantially by food prices, alongside an unfavourable base effect. The September reading marks the fourth consecutive month in which retail inflation has remained above the RBI’s target, although it continues to be within the statutory tolerance band of 2% to 6%.
Food inflation rose to 7.74% in September, compared with 5.97% in the preceding month, highlighting the growing contribution of essential commodities to the overall inflationary trend.
The increase in food prices comes amid concerns over agricultural output, weather-related disruptions and the possibility of supply-side constraints persisting in the coming months. The rise in the overall price index also reflects the impact of a comparatively favourable base in the corresponding period last year, which has amplified the year-on-year inflation rate.
The latest inflation figures follow the RBI’s decision last week to increase the policy repo rate by 25 basis points to 5.5%, marking its first rate hike in nearly four years. The central bank also shifted its monetary policy stance from neutral to calibrated tightening, citing indications that inflation expectations were rising and price pressures were becoming more widespread.
The policy decision reflects concerns that persistent inflation could begin affecting broader pricing behaviour, even as the RBI acknowledged that evidence of supply-side pressures becoming entrenched remained limited.
The latest data could strengthen expectations of further monetary tightening if inflation continues to rise or begins spreading beyond food and other volatile components. Economists have indicated that the trajectory of prices in the coming months will be critical in determining the scale and timing of any additional policy action.
The RBI has revised its retail inflation projection for the 2026–27 financial year upwards to 5.2% from its earlier estimate of 5%. It expects inflation to average 4.9% in July–September, rise to 6% in October–December, and moderate to 5.7% in January–March 2027. For April–June 2027, the projection stands at 5.6%.
These projections indicate that price pressures are likely to remain elevated over the coming quarters. The central bank will have to assess whether the recent acceleration is temporary or reflects a more persistent inflationary trend requiring a sustained policy response. <Cite refs={["turn895696view0","turn895696search4"]}/>
The inflation surge comes against the backdrop of resilient domestic economic activity. India’s gross domestic product expanded by 7.8% in the April–June quarter, exceeding expectations and prompting several institutions to revise their growth forecasts upwards. The RBI has also raised its GDP growth projection for 2026–27 to 7.1%, from 6.7% earlier.
While robust economic performance provides support to the broader growth outlook, persistent inflation complicates the central bank’s task of balancing price stability with economic expansion. Higher borrowing costs may help contain demand-driven price pressures over time, but monetary policy generally has limited immediate influence over inflation arising from shortages or rising food prices. The coming months will therefore be crucial in determining whether the recent increase in inflation eases or prompts the RBI to maintain a tighter monetary stance for longer.
