India is facing a double whammy where the country’s retail and wholesale inflation have spiked simultaneously, primarily driven by rising food and fuel costs, in the month of September. As per the Union government’s provisional figures released today (October 14), wholesale inflation, measured by the Wholesale Price Index (WPI), has jumped from 9.92% (August) to 11.39% (September).
Concurrently, the Consumer Price Index (CPI)-based retail inflation rate has increased from 4.83% (August) to 5.54% (September), reaching its highest level in 23 months. The CPI number is nearing the upper echelon of the Reserve Bank of India’s (RBI) tolerance band, which ranges from 4% to 6% in its Flexible Inflation Targeting (FIT) framework.
The rural CPI inflation surpassed the urban CPI inflation by 1.20 percentage points, wherein the rural inflation rate rose to 6.08% and the urban inflation rate climbed to 4.88%.
The Escalation of Wholesale Inflation
The wholesale inflation is accelerated by a price spike in its three components, namely primary articles, manufactured products, and fuel and power.
The division-wise inflation in fuel and power increased from 22.93% in August to 25.85% in September, caused by protracted crisis in West Asia. Within this division, petroleum and natural gas inflation grew to 57.32%, while the mineral oils inflation ascended to 40.02% in September.
Manufactured products is the largest category in the WPI, which saw an increase in inflation rate from 8.37% (August) to 9.76% (September). The price rise in this division, to a large degree, is caused by an overall uptick of costs across basic metals, textiles, rubber, chemicals, electrical equipment and plastic products.
Constituents Pushing the Retail Inflation
The CPI-based retail inflation rate, with base year as 2024, was provisionally released on Monday (October 12) by the National Statistics Office (NSO), functioning under the Ministry of Statistics and Programme Implementation (MoSPI).
According to the estimated data published, the CPI has majorly risen due to the growing food and fuel prices. The Consumer Food Price Index (CFPI) is the metric for gauging the food costs, which jumped from 5.97% in August to 7.74% in September. This also marks its highest level since December 2024.
Mounting onion and garlic prices propelled the CFPI to rise, where the onion rates virtually doubled from 48.78% in August to 108.09% in September. The costs of garlic and lemon increased to 54.62% and 36.41% respectively.
This is closely followed by soaring fuels costs, that has caused the division-wise inflation in restaurant and accommodation services to rise to 9.36% from 8.38%. The division-wise inflation in transport also increased to 5.01% from 4.6%, driving the CPI higher.
The inflation rate in health division was the lowest, standing at 1.40%.
Retail Inflation Highest in Tamil Nadu, followed by Odisha
When it comes to the state-wise retail inflation rates in September, the southern state of Tamil Nadu topped the list at 6.81%, followed by Odisha at 6.70% and Madhya Pradesh at 6.68%.
The fourth-highest inflation rate was recorded in Telangana at 6.64%, with Andhra Pradesh taking the fifth place at 6.29%.
Possibility of Further Repo Rate Hikes by the RBI
As both the WPI and CPI surge, the case of another benchmark interest rate hike by the RBI is increasingly possible. RBI had previously shifted its policy from a neutral stance to “calibrated tightening”, where it raised the repo rate by 25 basis points to 5.50%.
Experts predict more hikes in the near term, where Aditi Nayar, Chief Economist at ICRA, remarked, “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.”
The Chief Economist at Bank of Baroda, Madan Sabnavis, anticipated the retail inflation to reach as high as 6%, thereby stating that, “Therefore, our view still holds that December will warrant another rate hike.”
Moreover, Radhika Rao, senior economist at DBS Bank (Singapore), held that, “In the face of higher headline prints, we expect the RBI to keep the door open for another rate hike in December 2026.”
The October retail inflation numbers are scheduled to be published on November 12.
