India’s inflation rose to a 23-month high of 5.54% in September, staying above the RBI’s 4% target for four months. Higher food prices and commodity costs fuelled these pressures. Rajeev Sharan said, “The sharp pickup reinforces the RBI’s hawkish turn.” Rising costs now threaten to dampen consumer demand and economic growth.
New Delhi: India’s inflation rose to a 23-month high of 5.54% in September, remaining above the Reserve Bank of India’s 4% midpoint target for a fourth consecutive month as higher food prices, elevated commodity costs and an unfavourable base effect fuelled price pressures.
The consumer price index (CPI) rose 5.54% in September, according to provisional data released by the Ministry of Statistics and Programme Implementation on Monday. This compares with the 5.6% increase forecast by 19 economists in a Mint survey.
Food inflation, a key component of the CPI, stood at 7.74% in September, up from 5.97% in August, 5.52% in July, 5.32% in June, 4.78% in May and 4.20% in April.
Higher inflation threatens to dampen consumer demand and weigh on economic growth. RBI governor Sanjay Malhotra said last week that inflation and its outlook were not benign, adding that headline inflation was expected to average nearly 5.8% over the next three quarters.
“The sharp pickup reinforces the RBI’s hawkish turn,'' said Rajeev Sharan, Head of Research, Brickwork Ratings. ``From a credit-risk lens, sticky food inflation alongside rising rates could strain household budgets and retail-loan servicing.''
Inflationary pressures
In October, the RBI’s Monetary Policy Committee (MPC) raised its inflation projection for FY27 to 5.2%, from 5% in August. It cited persistent supply-side pressures stemming from deficient southwest monsoon rainfall, El Niño conditions and volatility in international oil prices. These factors could push headline inflation higher in the coming months, with inflation expected to peak in the December quarter of FY27.
The inflation ``outlook for 2027 remains clouded by low reservoir levels, which could weigh on rabi output. Further, if energy prices stay elevated, their pass-through to broader prices will follow with a lag. Against this backdrop, we are penciling in another 50 bps of rate hikes by the RBI in this cycle,” said Vikram Chhabra, Senior Economist, 360 ONE Asset.
Silver jewellery along with vegetables such as onion, ginger, garlic and lemon were among the items that recorded the strongest inflationary pressures, the data showed. Potato, tomato, lady finger, coconut and motor cars and jeeps were among the items with the lowest all-India inflation.
The personal care, social protection and miscellaneous goods and services group recorded inflation of 13.75% in September, compared with 15.17% in August. Prices of restaurant and accommodation services rose 9.36%, against 8.38% in August.
Brent crude prices have risen 12-14% this month to above $103 a barrel amid heightened tensions in the Middle East and concerns over maritime shipments through the Strait of Hormuz. The increase has added to cost pressures in transport services, where inflation stood at 5.01% in September, against 4.6% in August. Inflation in transport services for goods was 14.73%.
The conflict in West Asia has weighed on India’s economy, contributing to currency weakness and heightening stagflation risks. However, gross domestic product (GDP) growth remained firm at 7.8% in the June quarter of FY27, even as various agencies expect growth to moderate over the current fiscal year.
The RBI expects real GDP growth to remain at 7.1% in FY27, up from its August projection of 6.7%. The World Bank has also raised its growth projection for India to 7.1% for the fiscal year, from 6.6% earlier. The Asian Development Bank, in its September 2026 Asian Development Outlook, raised its FY27 growth forecast to 7%, from 6.6%.
Base effect
The latest CPI data cannot be directly compared with the year-earlier period because the index was rebased in January, with 2024 as the new base year. Retail inflation was recorded at a revised 2.74% in January, when the new series was introduced.
The new index is based on spending patterns captured in the 2023-24 Household Consumption Expenditure Survey. Changes to the weights of individual components have modestly raised headline inflation readings, with the share of core items increasing by about 10 percentage points and volatile food prices accounting for a smaller share.
The new series also increases the weight of housing, changing how inflation is measured and potentially moderating volatility in the headline reading. Housing inflation stood at 2.74% in September, compared with 2.61% in August.