ExplainedInflation
Why retail inflation jumped in September, and what it means for your EMI
Onions, garlic and silver pushed prices up at the fastest pace of the year. Economists now expect the RBI to raise rates again in December, which would reach home loans within months.
The short answer
Retail inflation rose to 5.54% in September from 4.83% in August, driven mainly by food, with onion prices more than double their level a year ago. The RBI raised the repo rate to 5.50% on 7 October and several economists now expect another hike in December. Most new floating-rate home loans are linked to the repo rate and must be reset at least once every three months, so a further hike would show up in EMIs within a quarter.
How much did inflation rise?
Retail inflation rose to 5.54% in September from 4.83% in August, the highest reading of 2026 so far. The figures, released by the Ministry of Statistics and Programme Implementation on 12 October, are provisional. Inflation has risen every month this year, from 2.74% in January.
The headline number is still inside the Reserve Bank of India’s tolerance band of 2% to 6%. But it is well above the 4% target the RBI is meant to aim for, and above it for the fourth month in a row.
What pushed prices up?
Food did most of the work. Food inflation, measured by the Consumer Food Price Index, jumped to 7.74% from 5.97% in August.
Onions led the way. Their prices were 108.09% higher than a year earlier, up from a 48.78% rise in August. Ginger was up 62.85%, garlic 54.62% and lemons 36.41%. A few staples moved the other way: potatoes were 11.50% cheaper than a year ago and tomatoes 8.62% cheaper.
Outside the kitchen, silver jewellery was 87.80% dearer than a year ago, and eating out and hotel stays rose 9.36%. Bank of Baroda estimates core inflation, which leaves out food and fuel, at 4.3%.
Why are villages feeling it more?
Rural inflation was 6.08% in September, against 4.88% in towns and cities. Food takes a bigger share of household spending in villages, and rural food inflation reached 8.06%, compared with 7.18% in urban areas. The gap between rural and urban inflation widened to 1.20 percentage points from 0.93 in August.
Among larger states, Tamil Nadu had the highest inflation at 6.81%, with food prices there up 10.62%. Odisha (6.70%), Madhya Pradesh (6.68%) and Telangana (6.64%) followed.
Will the RBI raise rates again?
Several economists think so, at the next policy meeting on 2 to 4 December. The RBI’s Monetary Policy Committee raised the repo rate by 25 basis points to 5.50% on 7 October, its first increase since February 2023. It expects inflation to average 4.9% in July to September, peak at 6.0% in October to December, and ease to 5.7% in January to March.
September’s figure fits that path, but the outlook is getting harder. Devendra Pant, chief economist at India Ratings and Research, said “an adverse base effect for food inflation in October 2025 could push food inflation in October 2026 to 9.1%”. Madan Sabnavis, chief economist at Bank of Baroda, said: “Therefore, our view still holds that December will warrant another rate hike.” Radhika Rao of DBS Bank expects the RBI “to keep the door open for another rate hike in December 2026.”
Crude oil above $100 a barrel, a weak monsoon and the conflict in West Asia are the main risks economists list.
What does this mean for my EMI?
If your home or car loan has a floating rate linked to the repo rate, each 25 basis point hike raises your interest rate by the same amount at the next reset. Since October 2019, banks have had to link new floating-rate retail loans to an external benchmark such as the repo rate, and reset them at least once every three months. So the 7 October increase will reach most such loans by early January, and a December hike would follow within a quarter of that.
As an illustration, on a ₹50 lakh loan over 20 years at an assumed 8.00%, the EMI is about ₹41,822. At 8.25% it rises to about ₹42,603, an extra ₹781 a month. A second hike to 8.50% would take it to about ₹43,391. Many lenders extend the loan tenure instead of raising the EMI, so check which option your bank applies. Our repo rate explainer sets out the rules in more detail.
What should borrowers watch next?
Three dates matter. The minutes of the October policy meeting, due on 21 October, will show how worried each MPC member is about inflation. October’s inflation figure comes out on 12 November; India Ratings expects it at about 6%. The December policy decision will then show whether the RBI moves again.
For individual borrowers, the reset date on the loan decides when any of this actually lands in the monthly instalment.
The documents
- Monetary Policy Statement, 2026-27: Resolution of the MPC, October 5 to 7, 2026Reserve Bank of India, 7 October 2026
- External Benchmark Based Lending (circular RBI/2019-20/53)Reserve Bank of India, 4 September 2019