India’s July Inflation Rises to 4.45%, Rate Hike Expectations Strengthen

India’s retail inflation increased to 4.45% in July, up from 4.38% in June, marking the ninth straight month in which consumer price inflation has risen. The latest data has renewed expectations that the Reserve Bank of India could consider raising interest rates later this year if price pressures remain elevated.

The July inflation reading was slightly below the 4.50% increase economists had expected, according to a Reuters poll. However, the rise in food and transport costs has raised concerns about the inflation outlook for the coming months.

Food Inflation Climbs to 5.5%

Food prices were one of the major contributors to the increase in inflation. Food inflation rose to 5.5% in July, putting additional pressure on household budgets.

Transport-related costs also recorded a significant increase. Inflation in personal transport and goods transport moved above 7% during the month, adding to concerns about higher costs for consumers and businesses.

Global Oil Prices Could Add More Pressure

India’s inflation outlook is also closely linked to global energy prices. The country imports nearly 85% of its fuel requirements, making domestic prices vulnerable to changes in international crude oil markets.

Recent disruptions to shipping routes in the Red Sea and Gulf of Oman have added to concerns over global energy supplies. International oil prices moved toward $90 a barrel, increasing the possibility of higher fuel and transportation costs in India.

Any prolonged increase in crude prices could also raise input and logistics costs across several sectors.

RBI Keeps Policy Rates Unchanged

The Reserve Bank of India recently kept its benchmark interest rates unchanged despite inflation moving above its 4% target.

RBI Governor Sanjay Malhotra said headline inflation had moved above the central bank’s target, while core inflation remained moderate. He also highlighted uncertainty surrounding the southwest monsoon, El Nino conditions, geopolitical developments and global trade policies.

The RBI expects headline inflation to peak during the quarter ending December, with core inflation expected to follow a similar pattern.

Will RBI Raise Interest Rates Later This Year?

The latest inflation data has increased expectations of a possible rate hike toward the end of 2026. However, the RBI will have to balance inflation risks with economic growth before making any policy move.

Morgan Stanley expects the central bank to begin raising rates in December. The brokerage has projected a cumulative 75 basis points of rate hikes, which could take the policy rate to 6%.

Morgan Stanley also expects India’s headline inflation to average around 5% during the financial year ending March 2027. Higher food prices and rising input costs are expected to remain key factors behind the increase.

For households, businesses and financial markets, the next few inflation readings will be important. If food, fuel and transportation costs continue to rise, pressure on the RBI to tighten monetary policy could increase further.