Economists: Retail inflation may remain above 6 per cent for next few months; rate hikes likely

With the headline retail inflation breaching RBIs upper tolerance limit for the first time in two years economists expect the CPI inflation to remain above the 6 per cent limit over the next few months led by higher food prices according to news agency PTIWe expect the next few readings to remain elevated above 6 per cent amid adverse base effect from GST higher food prices and partial passthrough of higher commodity prices Upasna Bhardwaj Chief Economist at Kotak Mahindra Bank saidAccording to Aditi Nayar Chief Economist at ICRA the CPI inflation is likely to average 62 per cent in the OctoberDecember quarter of FY27 marginally higher than the Monetary Policy Committees MPC projection of 6 per cent for the quarterHowever she expects inflation to moderate thereafter as the adverse base effect dissipates she saidFood inflation to remain highEconomists expect food inflation to remain elevated in the coming months with uneven monsoon and El Nino conditions that could affect crop output and suppliesDomestically weatherrelated risks remain significant with rabi sowing off to a weak start Low reservoir storage depleted soil moisture and drought conditions across several states pose further risks The food inflation trajectory will therefore hinge on the progress of the kharif harvest and the pace of rabi sowing in the coming months said Rajani Sinha Chief Economist at CareEdge RatingsAccording to economists the sustained rise in inflation could lead to further monetary tightening They expect the RBI to hike its repo rate by 025 per cent each in its December and February monetary policy reviewsCPI inflation rises in OctoberIndias headline retail inflation increased to 609 per cent in October led by costlier food items according to data released by the Ministry of Statistics and Programme Implementation on ThursdayThe central bank is mandated to keep inflation within the range of 26 per cent and in October 2024 retail inflation was 625 per centAccording to the data food inflation rose to 894 per cent in October 2026 from 774 per cent in the previous monthOnion prices rose 11622 per cent while the prices of garlic increased 6074 per cent Ginger prices increased 4832 per cent while the cost of lemon jumped 4730 per centRBI had hiked repo rate in OctoberThe apex bank in October had increased the benchmark policy rate or repo rate by 025 per cent to 550 per cent its first hike in nearly four years while signalling that further rate hikes could follow amid rising inflation a weak rupee and high crude oil prices RBI Governor had said rate cuts were off the table in the near termRBI anticipated higher inflation in Q3According to the RBIs Monetary Policy Committee meeting minutes the Governor noted that inflationary pressures are building up with headline CPI is projected to touch the upper tolerance band in Q3 and remain significantly above 5 per cent in the next two quartersAccording to the RBI the CPI inflation for 202627 is projected to be 52 per cent with Q2 at 49 per cent Q3 at 60 per cent and Q4 at 57 per cent Inflation for Q1202728 is projected at 56 per cent with risks being evenly balanced Core inflation is projected at 44 per cent for 202627