India’s Consumer Price Index (CPI) touched a 23-month high ti 5.54% year-on-year in September, driven by higher food prices and vegetable rates.
The figures were largely in-line with street and analyst expectations, despite registering a sharp jump year-on-year and month-on-month. In August, headline inflation clocked an 8-month high at 4.8%.
Brokerages like BofA, Goldman Sachs, and UBS expect headline CPI to inch higher, given the Iran war, energy supply disruption, and intensifying El Niño backdrop.
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Accordingly, BofA and UBS are expecting the Reserve Bank of India to tighten the monetary policy further, and are factoring in an around 75 basis point repo rate hike in MPC meetings scheduled for FY27, extending up to the first half of fiscal 2028.
“Over the coming months, we will continue to see CPI headline inflation inching up given the higher crude prices and weather-related risks materializing,” BofA stated. The brokerage added that it continues to expect RBI hiking repo rate by 50 basis points (bps) in FY27 and another 25 bps in the first quarter of FY28.
UBS expects the full-year headline inflation to average around 5.2% in the current fiscal year, while it will likely above the 5% mark through the first half of the next financial year strained by adverse weather-related strains.
“As per our global strategy team, historical evidence suggests that the effects typically materialize with a lag of 6-18 months following the peak weather disruption. With the likely peak occurring between November and February, the most significant impact on global food prices may emerge during 2027 and early 2028, adding upside risks to the inflation outlook,” the brokerage forecasted.
Therefore, it outlined, real policy rates are likely to turn negative, necessitating a recalibration of monetary policy.
“We expect a cumulative 75 bps of rate hike in this hiking cycle, taking the repo rate to 6%,” UBS said.
The preliminary estimate for October headline inflation is 5.9% year-on-year, driven mainly by higher food inflation due to unfavourable base effects, according to Goldman Sachs. Notably, brokerages pointed to inflation spreading across different baskets.
The Food Inflation Fangs Are Out; Will Complete Generalisation Follow?
Food inflation climbed to 7.74% in September from 5.97% in August, adding to pressure on the headline CPI number. Food and beverages inflation also increased to 7.36% from 5.66% in August.
Rural inflation rose to 6.08% in September from 5.97% in August, while urban inflation increased to 4.88% from 4.31%. The divergence between rural and urban inflation remains notable, with rural consumers facing a sharper rise in overall prices.
Among major CPI components, clothing and footwear inflation stood at 3.93% in September, while housing and utilities inflation was at 2.74%. Paan, tobacco and intoxicants recorded inflation of 4.8%. Personal care and miscellaneous inflation fell to 13.75% from 15.17% in August. Restaurants and accommodation services inflation accelerated to 9.36%, while education services inflation rose to 3.94% from 3.73% in August.
Other baskets like and health also clocked marginal increases, pointing towards a broadening of price pressures, brokerages underscored.
“We continue to see generalization in prices with 46% of the CPI basket recording more than 4% inflation vs 37% last month,” BofA projected. Although, GS highlighted that october food price momentum is tracking below September, despite El Niño-related risks.
Gold & Silver: Safe Havens For Core Inflation Too
Lower gold and silver partially rates offset the increase in core inflation, which rose 0.1 percentage points to 4.3% in September. Core CPI excluding gold and silver saw a faster increase to 3.3% year-on-year vs 2.9% in August.
“The rise in prices for restaurants, accommodation, clothing, footwear, household furnishing was partially offset by lower gold prices,” BofA explained.
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