India’s retail inflation, as measured by the Consumer Price Index (CPI), surged to a 23-month high of 5.54 per cent in September, nearing the Reserve Bank of India’s (RBI’s) upper tolerance limit of 6 per cent.
According to data released by the National Statistics Office (NSO) on Monday, higher food prices and rising transportation and services costs pushed inflation up from a revised 4.83 per cent in August.
Retail inflation has now remained above the RBI’s 4 per cent target for four consecutive months. Based on the back-series data, the September reading was the highest since October 2024, when inflation stood at 6.21 per cent.
Sequentially, the combined CPI rose 0.69 per cent to 109.49 in September from 108.74 in August. The data came five days after the RBI’s Monetary Policy Committee unanimously raised the repo rate by 25 basis points to 5.50 per cent and changed its stance to “calibrated tightening”.
The RBI expects inflation to rise to 6 per cent in the October-December quarter and average 5.2 per cent in FY27.
Madan Sabnavis, chief economist at Bank of Baroda, said the December quarter would pose a challenge, with inflation expected to peak at 6 per cent. “Therefore, our view still holds that December will warrant another rate hike,” he said.
Among food items, onion prices led the surge, with inflation more than doubling to 108.09 per cent in September from 48.78 per cent in August. Inflation in garlic (54.62 per cent) and lemon (36.41 per cent) also accelerated, while that in ginger eased slightly to 62.85 per cent.
Tomato deflation narrowed to 8.62 per cent from 31.09 per cent in August, while potato deflation eased to 11.50 per cent from 13.15 per cent.
Rajeev Sharan, head of research at Brickwork Ratings, said the trend signalled “acute vegetable-supply disruption amid an uneven monsoon withdrawal”.
The impact of higher fuel costs, amid the West Asia crisis, was also evident in some services. Inflation in restaurants and accommodation services rose to 9.36 per cent from 8.38 per cent, while transport inflation increased to 5.01 per cent from 4.6 per cent.
Overall, inflation rose in 11 of the 12 divisions in September compared with the previous month, with personal care being the sole exception. According to Devendra Pant, chief economist at India Ratings and Research, this indicated a “generalisation of inflation”.
Core inflation, which excludes volatile food and fuel prices, edged up to 4.6 per cent from 4.4 per cent in August.
Rural inflation rose to 6.08 per cent from 5.24 per cent, while urban inflation increased to 4.88 per cent from 4.31 per cent.
Among states with a population of more than 5 million, Tamil Nadu recorded the highest headline inflation at 6.81 per cent. It was followed by Odisha (6.7 per cent), Madhya Pradesh (6.68 per cent), Telangana (6.64 per cent), and Andhra Pradesh (6.29 per cent).
Looking ahead, the state of the kharif crop will be important in determining food inflation, Sabnavis said. “As of now, higher inflation is mainly due to depletion of earlier stocks as we head to the new season. Crop arrivals are hence important,” he said.
