India’s headline inflation jumped to 4.8% in August, food inflation to 6.0%, core inflation to 4.3%, and core excluding gold and silver prices to 3.1%. The sharp rise in input prices is still feeding through to consumers, while crude oil prices have flared up again.
An unfavourable base effect over the next few months is expected to push inflation print higher. Add to this stronger-than-expected in Q1 FY27, hawkish comments in the August monetary policy committee (MPC) minutes, rainfall deficiency that could keep food prices firm, and an expected rate-hike cycle by the US Federal Reserve. Many economists now see the RBI beginning its rate hike cycle as early as next month.
All signals are stronger
For months, economists looked at different metrics to make sense of how inflation was playing out. Headline inflation the medium-term target of 4.0% in June and has been rising since then. Food inflation has already firmed up and is expected to remain elevated amid 15% below normal rainfall. The initial fuel price hike pushed inflation for petrol to around 7.5%, diesel to 8.4%, liquefied petroleum gas to 5.3%, and solid fuels (coal, firewood, etc.) to 7.8%.
Core inflation, which excludes food, electricity, gas and other fuel groups as per CMIE, rose to 4.3%. For many months, this figure was being pushed up by higher metal prices; hence, looking at inflation excluding these items also became crucial. Even on that front (core excluding gold/diamond/platinum/ silver jewellery), inflation now stands at around 3.1% in August 2026, up from 3.0% the previous month, and 1.9% in the pre-war period.
All these figures point towards a broad-based rise in inflation, something which the about in August meeting minutes. Reserve Bank of India governor Sanjay Malhotra said that “even core excluding precious metals is expected to converge to core inflation in the last quarter of this financial year”, suggesting the need for a “recalibration of policy rate”.
On a sequential basis, prices are rising relentlessly. Headline inflation rose 0.7% month-on-month in August 2026 on top of an average rise of 0.6% each month since the beginning of the Iran war. Core inflation, excluding precious metals, rose 0.4% again in August, the same rate of rise seen on average in previous months.
“Wide array of data on growth, inflation and global developments suggests the need for RBI MPC to consider a rate hike in the upcoming meeting, and additional policy normalization over the next few meetings,” said ICICI Securities Primary Dealership in a report on Tuesday.
Crude effect
Inflation was already signalling signs of firming up, and additional pressures have emerged from the renewed flare-up in crude oil prices. After remaining below $100 per barrel since late May, Brent crude prices shot above that level last week and are currently around $108 per barrel. This was immediately reflected in India’s average crude oil basket price as well. This was around $83-90 per barrel between June and August, but jumped to $109.8 per barrel until 14 September.
According to Crisil, fuel prices are likely to remain elevated amid inventory depletion and persistent geopolitical risks from West Asia. “Under strong demand conditions, rising fuel costs and other input pressures will continue to be gradually passed through to consumers, raising core inflation,” it said.
The flare-up in crude prices in the run-up to the October policy meeting could make a case for a rate hike.
If crude oil prices remain elevated in the run-up to the upcoming MPC meeting, hinting at an impending upward revision in the retail selling prices of petrol and diesel, which could percolate into generalized price pressures, then the expected rate hike could get advanced to October 2026 from December 2026, said Aditi Nayar, chief economist at Icra.
Upward trajectory
Inflation is expected to rise, but even more strongly due to the base effect turning unfavourable over the next two-three months. If price pressures continue at a similar pace (0.5% month-on-month on average), headline inflation could reach 6% by October-November. Food inflation, driven by an even stronger unfavourable base, could reach above 8%. In a more modest scenario, which takes the five-year average sequential momentum each month, headline inflation could still rise to 5.5% and food inflation to 7.8% by October, before easing.
“CPI inflation likely to remain above 6% through Oct-Dec 2026; RBI likely to start rate hike cycle from Oct, with 100 basis points cumulative rate hikes expected through June 2027,” Deutsche Bank said in a report on Tuesday.
According to IDFC First Bank, headline CPI inflation is normalizing from ultra-low levels seen in FY26, and the supply-side shock has accelerated this pickup in inflation. “The longer supply shocks persist, the greater the risk of household inflation expectations becoming unanchored,” it said in a report.