India’s inflation may peak at 6.8 pc in Nov; SBI Research flags broader price pressures

India’s retail inflation is likely to intensify in the coming months, with rising food prices, weather-related supply disruptions, elevated global commodity costs and rupee weakness posing fresh challenges for policymakers, according to a report by SBI Research. The report warns that inflationary pressures are spreading across a wider range of goods and services, increasing the risk of a more prolonged period of monetary tightening.

In its Ecowrap report dated October 12, SBI Research estimated that consumer price index (CPI) inflation could peak at 6.7–6.8 per cent in November 2026, after retail inflation accelerated to 5.54 per cent in September from 4.82 per cent in August. The September reading was the highest under the revised CPI series and brought inflation closer to the Reserve Bank of India’s upper tolerance limit of 6 per cent.

Food prices remain the principal source of concern. Food inflation rose to 7.74 per cent in September, with sharp increases in essential items such as onions, garlic, ginger and lemons. Rural inflation stood at 6.08 per cent, compared to 4.88 per cent in urban areas, highlighting pressure on rural households.

Also read: Retail inflation rises to 5.54 pc in Sept on higher food prices

“The broadening of inflationary pressures, alongside persistent rupee weakness, calls for close monitoring by the RBI and a calibrated policy response to contain inflation risks,” the report said.

Inflationary pressures

A key concern identified by SBI Research is the growing breadth of price increases. The report noted that the number of commodities accounting for 75 per cent of the CPI’s weighted contribution to inflation increased from 25 in August to 31 in September.

According to the report, this indicates that price pressures are becoming less concentrated in a handful of items and more widely distributed across the consumption basket, potentially making inflation harder to contain.

The outlook is further complicated by deficient monsoon conditions and the risk of El Niño-related weather disruptions. Higher energy prices and other international commodity costs could add to domestic inflation, while rupee depreciation may increase the cost of imports, including crude oil.

SBI Research also highlighted an increase of 5.8 per cent year-on-year in the Food and Agriculture Organization’s Food Price Index in September, pointing to renewed pressure in international food markets.

Also read: As RBI tightens screws, what it means for your loan, home and food bill

The report cautioned that the combination of weather-related supply constraints, elevated commodity prices and currency weakness could allow temporary price shocks to develop into more persistent inflation.

Q3 forecast

SBI Research expects CPI inflation to average around 6.5 per cent in the third quarter of FY27, before easing to approximately 5.6 per cent in the fourth quarter. It projects full-year FY27 inflation at around 5.3 per cent.

The November peak forecast remains conditional on the evolution of food and energy prices, monsoon-related supply conditions and the rupee’s trajectory. The report said the RBI’s priority should be “to prevent temporary supply-side shocks from translating into broader and more persistent inflationary pressures”.

The projected inflation path suggests that price pressures could remain elevated even if the anticipated November peak is followed by moderation.

Possible RBI responses

Against this backdrop, SBI Research believes the peak policy rate could reach 6 per cent, arguing that persistent inflation may require further monetary tightening.

The report outlines two possible approaches for the central bank.

Under the first option, the RBI could adopt a calibrated tightening strategy by raising the marginal standing facility (MSF) rate by 25 basis points from 5.75 per cent to 6 per cent, followed by a 25-basis-point increase in the repo rate in December. The report says this sequence would ultimately take the MSF rate to 6.25 per cent.

Also read: India to grow 7 pc in 2026, outpace major economies: IMF

The second option would involve a more decisive 50-basis-point increase in the repo rate at the December policy meeting, signalling a stronger commitment to containing inflation. “The choice between the two options would depend on the persistence of inflation and the trajectory of the rupee going forward,” the report said.

The RBI had already raised its benchmark repo rate by 25 basis points to 5.50 per cent on October 7, marking its first rate increase in nearly four years. Its subsequent decisions will depend on incoming inflation data and the durability of price pressures.

Policy challenge

Further rate increases could help restrain demand and inflation expectations, but they may also raise borrowing costs for households and businesses. Higher interest rates can weigh on credit demand, consumption and investment, making the timing and scale of any additional tightening important.

SBI Research’s assessment places particular emphasis on monitoring food and energy prices, the exchange rate and the spread of inflation across the consumption basket.

For policymakers, the challenge will be to prevent a supply-driven inflation surge from becoming entrenched without imposing unnecessary costs on economic activity.

The report’s central warning is that inflation may prove more persistent than a temporary increase in vegetable prices would suggest. Whether the RBI ultimately opts for gradual or more aggressive tightening will depend on the extent to which these pressures continue into the final months of 2026.