Onions have once again become a problem for India's economy. They more than doubled in price over the year, and that helped push the country's retail inflation to 6.09% in October. That is above the Reserve Bank of India's tolerance band for the first time in two years.
The Ministry of Statistics released the figure on Thursday. It is the first time the new Consumer Price Index series has crossed the 6% mark. The RBI aims to keep inflation between 2% and 6% while also supporting growth. A reading above that range puts pressure on the central bank to respond.
Food is the main cause. Overall food inflation stood at 8.94% in October. Onion prices rose 116.22% compared with October last year, and garlic rose 60.74%. Ginger went up 48.32% and lemon 47.30%. These are basic items in almost every Indian kitchen, so households feel the increase quickly, and lower-income families feel it most.
A few items got cheaper. Potato prices fell 14.24%, cauliflower 10.57% and coconut 5.6% year-on-year. These declines were too small to offset the rise in other staples.
Food was not the only area of concern. Silver jewellery prices rose 52.39%, among the sharpest increases of the month. This adds to the RBI's earlier concern about precious metals affecting core inflation.
The RBI saw this coming
The October figure does not come as a surprise to the central bank. On October 7, the Monetary Policy Committee voted unanimously to raise the repo rate by 25 basis points to 5.5%. Governor Sanjay Malhotra said then that price pressures were spreading.
In his statement, Malhotra noted that CPI inflation rose to 4.8% in August from 4.5% in July. He said food price increases had "become more broad-based," with sharp jumps in sugar and onion. Core inflation rose to 4.2%, or 2.9% excluding precious metals. The share of items in headline CPI with inflation above 4% had risen to about 37%.
The RBI also listed the risks ahead: a deficient monsoon, ongoing El Nino conditions and high energy and commodity prices, whose effect on retail prices is still feeding through. It projected CPI inflation of 6.0% for Q3, 5.7% for Q4 and 5.2% for 2026-27 as a whole. October's 6.09% means the third quarter has started slightly above that forecast.
Why it matters now
The October number strengthens the case for another rate hike at the next policy review. Central banks around the world have also turned more hawkish as inflation rises in major economies, and the US Federal Reserve raised rates by 25 bps in September.
For borrowers, another hike would likely mean higher EMIs on home and auto loans. For savers, deposit rates may rise. For the government, the onion price surge is also a political issue, as it has been many times before.
The main question now is whether supply-side pressure from the weak monsoon eases in time, or whether the RBI raises rates again to contain inflation expectations. The RBI expects inflation of 5.6% for Q1 of 2027-28, with risks "evenly balanced." That projection suggests price pressure will stay high for some time.
With inputs from IANS
