Why inflation may hit 6% soon — and what happens to prices after that

New Delhi: India's retail inflation could briefly rise above 6 per cent in October and November before easing to around 5 per cent in the final quarter of the 2026-27 financial year, according to a report by SBI Research.

The report expects retail inflation to increase to 4.7 per cent in August, from 4.45 per cent in July.

"We expect August inflation print at 4.7%, with inflation possibly just breaching 6% in October and November before declining to around 5% in Q4 of FY27," the report said.

Why could inflation rise?

Food prices will be a key factor. However, SBI Research said improving food supplies could help keep inflation under control.

The monsoon has improved after a weak start. July saw surplus rainfall, while August rainfall has been normal. This has reduced the overall rainfall deficit to around 13 per cent, from nearly 40 per cent in June.

The report also pointed to the positive Indian Ocean Dipole, a weather pattern that could partly offset the impact of El Nino.

Kharif crop sowing is currently only 2 per cent below last year's level, despite below-normal rainfall in some major foodgrain-producing states. SBI Research said this could indicate that better irrigation facilities are helping farmers cope with uneven rainfall.

Historical trends also suggest that inflation could be lower in the fourth quarter than current forecasts, the report said.

What does this mean for RBI rates?

The inflation outlook could also influence the Reserve Bank of India's next steps on interest rates.

RBI Governor Sanjay Malhotra has said the central bank needs greater clarity on the inflation trend before deciding whether to change its policy stance.

Minutes of the latest Monetary Policy Committee meeting showed that Malhotra felt inflation was beginning to normalise after remaining at relatively benign levels. He preferred to wait for more evidence before deciding the next course of monetary policy.

SBI Research also raised concerns about how central bank policy is communicated to markets. It argued that recent actions by the RBI could matter more to investors than forward guidance about its future plans.

The report cited measures including variable rate reverse repo operations and the FCNR(B) deposit mobilisation window while discussing this issue.

Global markets also in focus

The SBI report also highlighted developments in the US that could affect global financial markets.

It said measures by the US Federal Reserve to smooth longer-term US Treasury yields, including increased government debt repurchases, could influence markets worldwide.

Longer-term bond yields, including those for 10-year US Treasuries, have declined amid expectations that the US government could shift the mix of its debt towards shorter- and longer-term maturities.

What it means for you

For Indian consumers, the key takeaway is that inflation may remain relatively manageable in the near term but could see a temporary spike later this year before easing again towards the end of FY27.

(PTI)