Retail inflation in October breached the RBI’s upper tolerance limit of 6 percent for the first time in two years—a development that had been building for months. While a breach was expected, the persistence of inflationary pressures above this level warrants attention from monetary authorities. The hardening of inflation reflects the transmission of global supply chain shocks, a below-average monsoon and seasonal factors. It also shows that the impact of last year’s GST rate cuts, and the subsequent reduction in prices of goods and services, is finally beginning to wear off.
Retail inflation hit 6.09 percent in October, its highest level since October 2024, when it touched 6.21 percent, driven largely by high food prices. Food inflation climbed to 8.94 percent year-on-year, up from 7.74 percent in September. As food accounts for 35 percent of the CPI basket, it has a major bearing on overall inflation. Other factors contributed, too. Fuel prices remained elevated following the May 2026 increase in petrol and diesel prices, while aviation turbine fuel prices continued to rise. This resulted in a 5.84 percent increase in the cost of passenger and goods transport. Commercial LPG prices also continued to rise, with a ₹62.5 per cylinder hike in October, pushing up the cost of restaurant and accommodation services by over 10 percent.
Rising raw material prices, amid supply chain disruptions since the start of the US-Iran conflict, have forced automakers, consumer durables and FMCG companies to pass on higher costs to consumers. Carmakers have been raising prices since early this year and continue to do so. The impact of last year’s GST rate cuts has also begun to fade as companies find it increasingly difficult to keep prices in check amid rising production costs.
The concern now is that these factors could keep inflation above 6 percent through the first half of next year. The RBI has already signalled the end of the low-interest-rate regime in its October monetary policy review, raising the repo rate by 25 basis points. That this hike may be only the beginning is reflected in October’s inflation numbers and the price pressures building up in the coming months. The central bank will now have to consider not just further rate hikes but also where and when to stop. We should all be prepared for another 50-75 basis points of rate increases by the end of this fiscal year.
