India inflation hits 6.09% as food costs climb, December rate hike looms
India's retail inflation climbed to 6.09 per cent in October, breaking through the Reserve Bank of India's 6 per cent upper limit for the first time under the new CPI series. The reading, up from 5.54 per cent in September, keeps inflation above the RBI's 4 per cent medium-term target for a fifth straight month and sharpens the case for another rate increase.
Food did most of the damage. Food inflation rose to 8.94 per cent from 7.74 per cent as onion, garlic and ginger prices climbed, and the category carries nearly 40 per cent of the consumer price index. Price pressures also broadened: 19 of 43 index sub-groups logged inflation of 4 per cent or higher, against 14 in September, with transport inflation at 5.84 per cent and core inflation at 4.5 per cent, according to IDFC First Bank.
Economists had forecast 5.93 per cent, and the overshoot has hardened expectations of tightening. "The data reinforces our expectation of a second successive rate hike in December," said Radhika Rao, senior economist and executive director at DBS Bank, adding that inflation is yet to peak. ICRA chief economist Aditi Nayar called a further 25-basis-point hike "almost certain". The repo rate stands at 5.50 per cent after the RBI's first increase in nearly four years last month.
The bond market took the print in its stride, with the 10-year yield holding at 7.25 per cent as traders kept bets on about 100 basis points of hikes. The rupee, which recovered in November after nearing record lows in October, is drawing support from lower oil prices and returning foreign portfolio inflows. Brent trades near $92 a barrel, some relief for the world's third-largest oil importer.
The RBI expects inflation to average 6 per cent in the October-December quarter and 5.2 per cent for the financial year. Minutes of its rate-setting meeting flagged the need for further hikes without endorsing an aggressive cycle, citing growth risks, while Governor Sanjay Malhotra has warned that a weak monsoon and strong El Nino conditions threaten agriculture and rural demand. Axis Bank economist Tanay Dalal expects inflation above 6 per cent until June 2027, warning the numbers raise the risk that policy rates may need to rise above the estimated neutral rate of 6 per cent.
