India’s consumer price index climbed to a 22-month high of 5.54 percent in September. This jump from 4.82 percent in August shows that inflation is getting severe. The Reserve Bank of India faces a tough challenge as many factors, including high crude prices, keep pushing costs up for the economy.

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India’s inflation has been northbound for 11 straight months. As September’s consumer price index (CPI) climbed to a 22-month high of 5.54 percent, it marked a significant jump from 4.82 percent in August signalling that the price increases in the economy are becoming more severe. Importantly, the 5.2 percent forecast for CPI in March 2027 is way above the targeted 4 percent even as it is getting broad based, making it a challenge for the Reserve Bank of India (RBI) to rein it in.

The central bank’s rate-setting members, in the October meet, expressed concerns that the pass-through of high input costs to retail prices was clearly underway. Besides, there are multiple forces such as commodity price and crude price shocks, El-Nino impact, weak monsoon and food price increases, all driving up inflation. This necessitated pre-emptive action to cool demand, leading to a unanimous vote in favour of the latest 25 bps rate hike to 5.5 percent.

This is not all. Signals of further rise in inflation indicate more rate hikes in the near term. My colleague Aparna Iyer writes that policy rate hikes not only fix the inflation problem, but also a host of other things – read here – from preserving policy credibility and attracting capital flows to sustaining a healthy balance of payments.

Meanwhile, the global picture offers little room for complacency either. The IMF’s October World Economic Outlook projects global headline inflation to rise to 4.7 percent in 2026 before easing to 4.1 percent in 2027. Core inflation is expected to remain relatively sticky, given the uncertainty on crude oil and energy prices.

Particularly relevant to India is its observation that the energy-importing economies outside the technology value-chain face the most difficult outlook. India imports around 85 percent of its fuel needs. The Brent crude price has hit a near five-month high as the market prices in risks of renewed conflict, low inventories and record freight and insurance costs. Therefore, oil prices would have to rise to curb demand, points out Shishir Asthana, quoting Christopher Haines of Energy Aspects. Read here why oil prices keep climbing even as Hormuz traffic has improved considerably.

The IMF also spells out that low-income countries that have little offsetting benefits from the recent technology upticks and investments are also exposed to the risk of widening income gaps.

As for India, economists at Barclays have forecast two more rate hikes in the current cycle, HSBC has forecast one increase of 50 bps in December while Goldman Sachs expects at ⁠least three ​more, spread over December to June 2027.

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