Food Inflation Concerns Mount as RBI Likely to Hike Rates in December

ICICI Bank expects the RBI to hike interest rates by 25 basis points in December as food inflation remains high. Potential shortfalls in the rabi crop and supply-side constraints continue to drive up costs for cereals, pulses, and edible oils.

Food Inflation Concerns Mount as RBI Likely to Hike Rates in December

New Delhi [India], November 13 (ANI): Food inflation is expected to remain high over the next few months, with the Reserve Bank of India likely to raise interest rates by 25 basis points in December to cool retail inflation, a report by ICICI Bank highlighted. The report said the outlook for food inflation will largely depend on the upcoming rabi crop, as the kharif season has witnessed a shortfall. Lower reservoir levels and soil moisture conditions could also affect rabi crop output, creating upside risks to food prices. It said cereals, pulses, coarse cereals and edible oils are among the food items that could face upward price pressure. The distribution of rainfall across the country during the monsoon indicates that these crops could see the maximum impact. "Hence, food inflation is likely to remain elevated over the next few quarters with a high base pushing the same down in H2FY28," the report stated.

India's retail inflation accelerated to 6.08% year-on-year in October, breaching the upper range of the RBI's tolerance band for the first time in the last two years. This compared with 5.54% in September, with the increase largely driven by food inflation and an unfavourable base effect. Food inflation increased to 8.9% in October from 7.7% in September, while core inflation stood at 4.5%. The report noted that both a low base and sequential momentum of 0.9% month-on-month contributed to the rise in food inflation. Inflationary pressure is also becoming more broad-based. Around 53% of the weighted Consumer Price Index basket is now witnessing inflation above 4%, compared with 20% in March 2026. The report further highlighted that nearly 70% of food items recorded inflation above 4%, with upward pressure visible in pulses, cereals and edible oils, as well as meat, milk and eggs. Core inflation, excluding gold and silver, rose to 3.8% year-on-year in October from 3.2% in September. The increase was driven by a sharp pickup in goods inflation due to the pass-through of higher input costs and a low base following GST cuts. According to ICICI Bank, inflation is rising due to two supply-side factors: a weak monsoon and elevated energy prices. However, oil prices have moderated and returned to the RBI's baseline, with further moderation expected to provide relief. The bank has revised its CPI inflation forecast to 5.2% for FY27 from 5.1% earlier, and to 5.0% for FY28 from 4.9% earlier. The report said inflation is slightly above the RBI's projected trajectory in the third quarter. However, the resumption of foreign portfolio investor inflows and moderation in oil prices could influence the Monetary Policy Committee's decision. ICICI Bank expects the RBI to raise rates by 25 basis points in December and February to bring inflation back to the target in H2FY28.