HSBC Sees Greater Risk Of More RBI Rate Hikes As India’s CPI Inflation Climbs To 5.5% And Price Pressures Spread

India’s retail inflation increased to 5.5% in September 2026, with rising prices spreading beyond food. HSBC expects the Reserve Bank of India (RBI) to raise rates by 25 basis points at its December policy meeting, while another hike remains possible later.

The bank said further increases would become more likely if upcoming inflation readings remain elevated or underlying price momentum strengthens.

Inflation Spreads Across India’s CPI Basket

Around 45% of the consumer price index (CPI) basket recorded inflation above the RBI’s 4% target, compared with 37% in August. Non-food goods inflation reached 5.8%, while services inflation also began accelerating more clearly.

Core inflation momentum strengthened, rising by 0.5% month-on-month in both August and September after averaging 0.2% between April and July. Annual core inflation increased to 4.3% from 4.1% in the previous month.

Rural inflation remained higher than urban inflation at 6.1% versus 4.9%. Sequential inflation momentum stood at 0.7% on a seasonally adjusted basis.

Food Costs Keep Inflation Risks Alive

Food remained the main contributor to rising prices. Sequential food inflation stayed at 1.2%, driven by vegetables, while sugar, fruits, edible oils, cereals and milk also recorded strong price increases.

Around 60% of food components were experiencing inflation above 4%. Energy inflation remained relatively contained as administered fuel prices were unchanged.

HSBC said inflation in October was moving closer to 6%, the upper end of the RBI’s tolerance band. Although vegetable prices eased slightly in early October and sugar prices declined after government measures, El Niño conditions could keep food prices under pressure.

The bank also pointed to incomplete pass-through of higher input costs to consumer prices, alongside October increases in commercial liquefied petroleum gas (LPG) prices and some electronics prices.

RBI Rate Hike Could Support The Rupee

The bank said consecutive higher inflation readings or continued strengthening in core inflation would reinforce the case for further rate tightening.

Such moves could widen India’s interest-rate differential with the US and provide some support to the rupee, according to HSBC.

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