RBI MPC flags input cost pass-through to consumer prices, warns of wider inflationary pressures

RBI Monetary Policy Committee (MPC) members have flagged increasing evidence of rising input costs being passed on to consumers, warning that inflationary pressures could become more widespread amid strong demand and elevated food and energy prices.

The minutes of the MPC's October 5-7 meeting, released on Wednesday, showed members expressing concern that price pressures were becoming entrenched in the economy, with higher costs of production beginning to feed into the prices of goods and services.

Saugata Bhattacharya, an external member of the MPC, said input prices recorded in wholesale price indices had been rising at close to 9% year-on-year.

"Media reports and enterprise surveys suggest that these input costs are being passed on to consumer prices," he said.

Indranil Bhattacharyya, an executive director at the RBI and MPC member, also pointed to increasing evidence of input cost pressures being passed on in certain segments, including restaurants and cooked meals.

"Greater pass-through is expected going ahead, especially when demand conditions are strong," he said.

The concerns come amid rising food and fuel prices, elevated crude oil and commodity prices, and weather-related risks from deficient monsoon conditions and El Nino.

The RBI has projected retail inflation at 5.2% for 2026-27, up from its earlier forecast of 5%.

The retail inflation is expected to rise to 6% in the December quarter before easing to 5.7% in the March quarter.

MPC member Ram Singh said evidence suggested that inflationary pressures had spread beyond the direct effects of fuel, energy and commodity prices following the West Asia conflict.

“Emerging evidence points to indirect effects (firms passing these cost increases onto the prices of the goods and services they provide),” he added.

The RBI's September household survey also showed that the median inflation expectation for the next three months had jumped to 9.9%, Singh noted.

RBI Governor Sanjay Malhotra, in his statement, said 37% of commodities in the CPI basket recorded inflation above 4% in August, compared with 20% in March.

Core inflation rose to 4.2% in August from 3.9% in July, while core inflation excluding precious metals increased to 2.9%.

The RBI has projected core inflation at 4.4% for the current financial year.

The MPC unanimously raised the policy repo rate by 25 basis points to 5.50% at its October meeting and shifted its stance from neutral to calibrated tightening.

The minutes said the new stance signalled that rate cuts were off the table in the near term, with future policy action likely to be either a rate hike or a pause.