India's retail inflation jumps to 5.54% in Sept; highest under new CPI series

India's retail inflation climbed to 5.54% in September, driven mainly by a rise in food prices, according to government data released on Monday.The figure remained above the Reserve Bank of India's (RBI) 2% lower tolerance limit and moved closer to the upper end of its 2%-6% inflation target band.The Consumer Price Index (CPI)-based inflation rate stood at 4.83% in August and 4.45% in July this year.What does this mean for consumers?The uptick in inflation could strengthen the case for another rate hike, as price pressures linked to the US-Iran conflict and a weak monsoon in the country weigh on the economy, according to a Reuters report.If the RBI raises interest rates again, borrowers with loans linked to floating interest rates could face higher EMIs or longer repayment tenures, while fresh borrowing could become more expensive. Additionally, rising retail inflation also puts pressure on household expenses.The central bank joined its global peers last week to raise its benchmark repo rate by 25 basis points to 5.5% for the first time in nearly four years, citing evidence of elevated inflation expectations and broadening of price pressure.RBI last raised rates in February 2023.Retail inflation nears two-year highThe latest figure also marks a near two-year high, with inflation last standing higher at 6.21% in October 2024.However, India revised the CPI base year from 2012 to 2024 earlier this year, in January and updated the consumption basket to reflect changing household spending patterns.What is driving retail inflation higher?Inflation has climbed steadily over the past two quarters, and recent prints show no loss of momentum. "Food and supply pressures are the main drivers,” said Nirav Karkera, Head of Research and Fund Manager at W by Groww.He noted that onion prices have increased sharply, contributing significantly to headline inflation given the vegetable's weight in the consumer price basket.Freight and eating-out costs are also picking up pace, creating channels through which supply-side shocks could spread to other parts of the basket, although most services remain contained for now, Karkera added.“Rural households are carrying a heavier burden. That raises concerns for consumption, especially with a weak monsoon and El Nino threatening the rabi harvest,” he explained.Fuel retailers are still absorbing much of the rise in crude. Any pass-through to pump prices could hit freight and food together, and quickly. A weak rupee against the dollar also keeps imports expensive.“The good case could start taking shape towards the end of the year, though a soft base means the headline will take longer to show it. It depends on healthy kharif arrivals, government action to cool vegetable prices, softer crude and a stable rupee. With costs rising and demand soft to stable, policy rates are likely to stay tight as the RBI works to keep inflation within its tolerance band,” he added.