NEW DELHI: Retail inflation in India is not only rising to uncomfortable levels but also becoming more entrenched, which is likely to increase pressure on the Reserve Bank of India (RBI) to raise interest rates further.
While the two-year high consumer price index (CPI) inflation print of 6.1% in October was primarily driven by higher food prices, core inflation also rose to a series high of 4.5%, suggesting broadening price pressures.
Core inflation, which strips out food and fuel items, has been steadily rising this financial year. It rose from 3.7% in April to 4.3% in September and economists now see it rising close to 5% in the coming months.
Core inflation has averaged 4.1% during April-October and near 5% prints in the coming months are likely to push the FY27 average to around the RBI’s full-year projection of 4.4%, economists said.
Non-food, non-fuel inflation is seen rising because of the pass-through of higher input and energy costs by companies to consumers, along with an unfavourable base effect arising from GST rationalisation that took place last year, economists said.
“Core WPI and Core CPI inflation (reflecting latent price pressures), along with the phasing of GST deduction benefits in inflation computation, could keep core inflation on an upward trajectory in the near term,” economists at QuantEco Research said.
“The latent price pressures – reflected in the over 500 basis points wide gap between core WPI and core CPI inflation— are likely to catch up as producers keep gradually passing on high input prices in a seasonally strong consumption quarter,” QuantEco economists said in a note.
Within core inflation, the rise in price pressures is also widespread.
Core inflation rose in October despite a decline in gold prices and a downward correction in select personal care items during the festival month. “The increase indicates that underlying price pressures remain firm, with higher inflation across transport, clothing and footwear, information and communication, and household-related components offsetting the moderation in select items,” said Radhika Piplani, chief economist at Motilal Oswal Financial Services.
Food and beverage serving services inflation rose to 10.1% in October from 9.4% a month ago, while transport inflation increased to 5.84% from 5.01% in September.
Personal care, social protection and miscellaneous goods and services was the only CPI division where inflation moderated in October. The category’s inflation eased to 10.14% last month from 13.75% in September due to lower jewellery inflation.
Inflation also increased in the information and communication equipment category, driven by a surge in mobile phones, computers, and memory storage devices. Mobile inflation rose to 8.65% in October from 5.83% in September, while computers, laptops and tablets inflation increased to 8.61% from 6.46% in September.
Core inflation excluding precious metals, also known as core-core inflation, was lower in October at around 3.8%, but this metric has also been steadily rising this year. It was 2.2% in April and 3.2% in September. This rise in core-core inflation suggests producers are gradually passing on the surge in input cost pressures to consumers, said Gaura Sen Gupta, chief economist at IDFC FIRST Bank.
“The spread of inflation pressures within core-core inflation is widening, with 12% of CPI items by weight registering 6% or higher inflation in October. This was just 1% from January to May 2026,” Sen Gupta said.
Core-core inflation has averaged 2.8% so far this financial year, but prints are seen rising above 4% in next few months and average around 3.5% throughout FY27.
Rising core inflation and core-core inflation, along with near double-digit food inflation is expected to keep headline prints above 6% throughout the rest of the financial year.
“We expect inflation to average over 6% for the next three quarters, driven by relatively elevated momentum in prices of cereals, pulses, oils and fats, lower reservoir levels risks impacting winter crops, and elevated core inflation amid the pass-through of higher input prices,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.
Source: The Financial Express
