India’s Inflation Ticks Up as Food and Fuel Prices Stabilize, Pressuring RBI’s Growth-Focused Policy

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Summary:

India’s consumer inflation rose to 0.71% in November from a record low of 0.25% in October, in line with expectations. The increase, driven by food and fuel prices, comes amid continued global trade headwinds...

Inflation Rises But Remains Low in Historical Terms

India’s consumer price index (CPI) inflation rose to 0.71% in November, up from 0.25% in October, according to official data released Friday. Though this marks a modest rebound, inflation still remains exceptionally low by India’s historical standards.

The increase aligns with Reuters’ median forecast of 0.70%, and was attributed to rising prices of vegetables, eggs, meat, fish, spices, and fuel. Notably, fuel and light prices rose 2.32%, up from 1.98% in October, reversing the cooling trend seen earlier.

Both urban and rural inflation posted increases, although Kerala and Tamil Nadu maintained the lowest state-level inflation rates.

Policy Outlook: RBI Focuses on Growth

The Reserve Bank of India (RBI) recently cut its policy rate by 25 basis points, citing the benign inflation outlook and slowing economic momentum. The central bank now forecasts FY2025–26 inflation at 2.0%, down from 2.6% in October, while predicting a gradual rise to 4.0% by Q3 2026.

RBI Governor Sanjay Malhotra emphasized that the central bank remains “growth supportive” and will continue meeting “productive requirements of the economy in a proactive manner.” Analysts are divided on whether the latest cut marks the end of the easing cycle, though many, including HSBC Research, argue that further cuts may be needed in 2026 as fiscal constraints and global weakness persist.

Trade Headwinds Weigh on Growth Prospects

India’s external sector faces increasing strain. In August, the U.S. imposed a 25% tariff on a range of Indian goods including textiles, gems, and marine products bringing total duties up to 50%, among the highest levied on a U.S. trading partner.

This hit labor-intensive exports hard. October data showed U.S.-bound exports declined 8.5% YoY to $6.3 billion, while overall exports fell 11.8% to $34.38 billion.

To stimulate demand amid these external shocks, the Indian government implemented GST cuts in September across consumer goods, vehicles, and farm products aiming to support consumption during the festive season.

While domestic demand improved slightly, the Indian rupee has continued to weaken, falling below the ₹90/USD threshold on Friday raising import costs and complicating monetary policymaking.

Growth Stimulus Faces Inflation Risk

Although India’s inflation remains low, the slight uptick in November signals waning deflationary momentum in food and energy. Combined with trade disruptions from U.S. tariffs and a sliding rupee, the RBI’s task of balancing growth support and inflation control may become more challenging in early 2026.

Unless exports recover or the rupee stabilizes, further rate cuts may be warranted but not without risk. The RBI’s current strategy hinges on gradual inflation normalization and domestic consumption strength both of which now face mounting external and currency pressures.

Source: CNBC

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