India: Rising inflation pressures challenge RBI – Societe Generale

Societe Generale’s Kunal Kundu notes that India’s September Consumer Price Index (CPI) rose to 5.54% year-on-year, with food inflation at 7.74% and core inflation at 4.2%, signalling broadening price pressures. He highlights strengthening corporate pricing power, sticky services inflation and a negative ex-post real policy rate, arguing that the RBI’s recent 25bp hike likely marks the start of a broader tightening cycle.

Broadening inflation and tightening prospects

"Inflation has now risen every month since January and remained above the RBI’s 4% target for four consecutive months, confirming that the recent upturn is no longer merely a temporary food-price disturbance."

"More concerning, however, is the evidence that inflation is becoming increasingly broad-based."

"As corporate pricing behaviour adjusts, a growing proportion of accumulated costs is likely to be passed on to consumers, making inflation both broader and more persistent."

"Strong stronger cost pass-through and gradually rising services inflation increase the risk that elevated price pressures become embedded in household expectations and corporate price-setting behaviour."

"With the RBI projecting inflation at 6.0% in 3QFY27 and 5.7% in 4QFY27, the September print strengthens the case that the October rate increase marks the beginning, rather than the end, of the tightening cycle."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)