Indians felt the heat when Consumer Price Index (CPI) inflation bloated to 4.8 per cent in August. This was the third consecutive month above the Reserve Bank of India’s 4 per cent target. With mounting price pressures no longer small enough to be swept under the carpet, the Monetary Policy Committee (MPC) raised the policy repo rate by 25 basis points to 5.50 per cent and adopted a "calibrated tightening" stance.
The apex bank also revised its baseline CPI inflation forecast for 2026–27 upward to 5.2 per cent.
On closer inspection of the October 2026 Monetary Policy Report, it is pretty much clear that the inflation stems from the combo of global energy shocks and domestic weather disruptions—both not in the control of India.
The report cited the escalation of the West Asia war triggered by the US, which pushed India’s crude oil costs to an average of $114–116 per barrel in September, as a major driver in raising transportation and input costs across manufacturing and services.
Back home, a 13 per cent cumulative deficit in the southwest monsoon and El Niño conditions led to sharp price hikes in essential food items like sugar and onions. "A sub-average monsoon on account of El Niño is likely to impact food prices and is a vital reason for the RBI to maintain a vigilant stance on inflation even after this hike," said JLL India capital markets head Lata Pillai.
"A hawkish global backdrop, an El Niño-hit monsoon and elevated inflationary pressures and rising energy costs left no headroom to wait further, even as Q1 growth provides the confidence for this move," Pillai added,
RBI Governor Sanjay Malhotra stressed this when he said that "headline CPI inflation [is] expected to average almost 5.8 per cent in the next three quarters and core inflation projected at 4.4 per cent this financial year. In this milieu, recalibrating the policy rate is imperative."
And it is not just food and fuel. Price pressures are showing worrisome signs of generalisation across the broader economy.
Core inflation, despite the metric excluding volatile food and fuel components, climbed to 4.2 per cent in August. Back in April, only 23 per cent of the CPI basket components saw inflation more than 4 per cent. Now, it is 37 per cent, the report revealed.
The official MPC statement today also doubled down on RBI's stance to counter cost pressures, which read: "monetary policy primarily acts by curtailing second round effects (inflation expectations and firm level pricing behaviour, etc.), which take time to manifest and are difficult to extract from available data."
Now, higher inflation along with a repo rate hike means double the burden for a normal household: food expenses will go up along with loan EMIs.
