India’s headline inflation accelerated to 5.54% in September, up from 4.82% in August, increasing pressure on the Reserve Bank of India to tighten monetary policy further.
The consumer price index reading came in slightly above the 5.40% forecast in a Reuters poll. Inflation has climbed for 11 consecutive months in the world’s fastest-growing economy, reaching a 22-month high in September.
Earlier this month, the Reserve Bank of India raised interest rates for the first time since 2023, joining several major central banks in responding to intensifying price pressures. The RBI also indicated that, under “current conditions,” further rate cuts were “off the table in the near term,” leaving a rate increase or a pause as the most likely policy options.
India is among the economies most vulnerable to supply disruptions linked to the Iran war. The country imports nearly 85% of its fuel requirements and, before the conflict, depended heavily on energy shipments moving through the Strait of Hormuz.
Oil prices have remained elevated as tensions mount across the Middle East. Analysts nevertheless expect prices to stay volatile in the near term, with markets weighing the ongoing conflict and the potential impact of Hurricane Isaias.
The RBI forecasts core inflation of 4.4% for the financial year ending in March 2027, while headline inflation is projected at 5.2%. That estimate remains above the central bank’s medium-term inflation target of 4%.
The central bank lifted its economic growth forecast by 40 basis points to 7.1%. It also warned that prolonged geopolitical tensions, trade frictions, tighter financial conditions and high international commodity prices could weigh on economic activity.
Food prices and India’s rural economy face an additional threat from the Super El Nino. The country recorded its lowest rainfall in more than a decade between June and September, a crucial period for its largely rain-dependent farms and reservoirs.
According to the India Meteorological Department, the rainfall total was the fourth-lowest since 2001 and the 13th-driest since 1901. Several areas in major agricultural states, including Maharashtra, Andhra Pradesh, Punjab and Haryana, are experiencing severe drought conditions.
HSBC said in a report dated Oct. 7 that it expects the RBI to deliver another interest-rate increase in December, one day after the central bank’s policy decision. “This may not be a deep tightening cycle, but a tightening cycle it is,” analysts said, adding that September’s retail inflation figures were likely to produce a “sizeable headline pop.”
