Hidden inflation risks may force RBI rate hike in October

The core of the issue lies in the disconnect between international markets and local pumps. While Brent crude recently traded near USD 97.35 a barrel, domestic fuel prices remain stagnant. Sinha, formerly of the National Council of Applied Economic Research, emphasizes that this delay does not eliminate inflationary pressure; it merely masks it. The central bank is expected to look past the current retail stability and account for these underlying energy costs when it meets in October.

Beyond energy, the specter of food inflation complicates the economic outlook. A below-normal monsoon season risks driving up agricultural prices, further restricting the RBI's maneuverability. Given that both retail and wholesale inflation indices have climbed steadily in recent months, the central bank has little room for inaction. Sinha suggests that a confluence of expensive imports and potential domestic food shortages makes a rate hike the most probable outcome for the upcoming monetary policy review.