Quote on CPI by Aditi Nayar, Chief Economist, ICRA Ltd
Below the Quote on CPI Data by Aditi Nayar, Chief Economist, ICRA Ltd
With the CPI inflation jumping to a slightly higher than forecast 5.5% in September 2026 and appearing set to cross 6% in the ongoing month, the MPC's recent rate hike appears prescient. While the monsoon has turned out to be fairly dismal, with inadequate replenishment of reservoirs clouding the outlook for rabi sowing, another rate hike in December seems quite certain. Crude oil prices currently remain elevated, and their trajectory will keenly influence the likelihood and extent of further rate tightening in 2027.
CPI inflation expectedly hardened to a series high of 5.5% in September 2026 from 4.8% in August 2026, while printing slightly higher than ICRA’s estimate (+5.4%) for the month. The upswing was almost entirely led by food & beverages division, which accounted for as much as 62 bps of the 72 bps uptick in the headline inflation print between these months.
F&B inflation surged to 7.4% in September 2026 from 5.7% in August 2026, owing to an unfavourable base as well as strong sequential momentum in food prices. Besides, the core CPI (CPI excluding F&B, and Electricity, gas and other fuels) print inched up slightly to 4.6% from 4.4% in the previous month.
Early data for domestic retail food prices for October points to persistent food inflation pressures despite some moderation in sequential price momentum. ICRA expects the YoY inflation in the F&B segment to cross the 8.0% mark in October 2026. This, along with some hardening in the core inflation segment, amid the GST rationalisation-related unfavourable base, is set to push up the headline CPI inflation print to exceed 6.0% in the ongoing month.
Overall, we expect the CPI inflation to average at ~6.0% in Q3 FY2027, largely in line with the MPC’s estimate for the quarter, before easing slightly thereafter, as the unfavourable base dissipates. However, risks remain tilted to the upside, owing to the sub-par and uneven monsoons, as well as crude oil prices.
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