Is India’s inflation problem spreading beyond food and fuel prices? | Economy & Policy News

The RBI’s October 2026 Monetary Policy Report says core inflation—which excludes food and fuel—has also picked up, with “some signs of generalisation” in recent months. Core inflation has risen, services inflation has started to firm up, and a larger share of the CPI basket is now recording inflation above 4 per cent.

The key question, therefore, is whether inflation is still limited to a few categories affected by weather and energy shocks, or whether it is spreading to more goods and services.

Food and fuel still drive the initial rise

The first part of the inflation increase was clearly linked to food and fuel. The RBI said headline CPI inflation rose steadily after March, driven by strong price momentum. Food and fuel inflation increased because of adverse weather conditions and a sharp rise in energy prices following the escalation of the West Asia conflict.

Food and beverages inflation increased to 5.66 per cent in August from 3.7 per cent in March. The rise was driven largely by items other than vegetables. Within food, animal protein and spices were important contributors. The RBI estimates that these two sub-components together accounted for nearly 48 per cent of the 200-basis-point increase in food inflation between March and August.

Fuel inflation also moved sharply higher. CPI fuel inflation increased to 5.2 per cent in August from 0.4 per cent in April, reflecting higher global crude oil prices and increases in domestic petrol, diesel and household fuel prices.

Core inflation is moving higher

This is where the inflation picture becomes more significant. CPI inflation excluding food and fuel, commonly referred to as core inflation, increased from 3.7 per cent in April to 4.2 per cent in August 2026, according to the RBI.

But even this measure can be affected by precious metals, particularly gold and silver. The RBI therefore also tracks core inflation after excluding precious metals. This measure increased from 2.2 per cent in April to 2.9 per cent in August.

That distinction matters because gold and silver had been a significant source of core inflation in the previous year. During April-December 2025, gold and silver prices rose 41.6 per cent and 66.3 per cent, respectively, and together accounted for about one-third of overall core inflation during that period.

With precious metal prices having remained broadly range-bound after peaking in January 2026, the rise in core inflation excluding precious metals provides a stronger indication that price pressures are spreading beyond gold and silver.

The RBI said housing, restaurants and accommodation services, and clothing and footwear were among the other major contributors to core inflation.

Which non-food, non-fuel categories are becoming costlier?

Personal care, social protection and miscellaneous goods and services made the largest contribution to core inflation during April-August 2026. Housing was the next major contributor, followed by restaurants and accommodation services and clothing and footwear.

Education, furnishings and household equipment, health, and information and communication also added to core inflation.

This matters because these categories cover a broad range of everyday household spending. Housing costs, eating out and accommodation, clothing, education and healthcare are quite different from each other. A rise across several such categories is more consistent with a gradual widening of price pressures than a shock affecting only one commodity.

At the same time, the RBI’s data do not suggest that all categories are seeing equally strong price increases. Transport excluding petrol, diesel and CNG, for instance, made virtually no contribution to core inflation during the April-August period. So, the evidence is of a broadening trend rather than a uniform increase across the entire consumption basket.

Services are now joining the inflation story

The movement in services inflation provides another important signal. The RBI said the rise in inflation through July was driven mainly by higher inflation in goods, while services inflation remained moderate. That changed in August.

“Services inflation also increased, indicating broadening of price pressures,” the RBI said in its October MPR.

This marks an important shift in the inflation trajectory. The sequence is significant: food and fuel prices rose first, followed by a pick-up in goods inflation outside these categories. In August, services inflation also increased.

Services make up 28 per cent of the current CPI basket, according to the RBI. The core services component has a weight of 25.4 per cent. This means a sustained increase in services inflation can have a meaningful impact on the underlying inflation trend.

The August increase does not by itself establish that services inflation will remain high. But combined with the rise in core inflation, it is an early indication that price pressures are moving beyond the initial food and energy shock.

More of the CPI basket is now above 4 per cent inflation

The clearest evidence of broadening comes from the RBI’s ‘inflation diffusion’ analysis. The RBI’s October MPR examines inflation at the item level rather than looking only at the headline CPI number. It divides items in the CPI basket into four inflation categories: below 2 per cent, between 2 per cent and 4 per cent, between 4 per cent and 6 per cent, and above 6 per cent.

The purpose is to determine whether inflation is being driven by a small number of items or is becoming more widespread.

The results show a clear shift. In April 2026, around 23 per cent of the weighted CPI basket was recording inflation above 4 per cent. By August, that share had increased to around 37 per cent.

In simple words, more than one-third of the CPI basket, by weight, was recording inflation above 4 per cent in August, compared with less than one-fourth in April.

The RBI also noted a decline in the share of items recording inflation below 2 per cent, along with an increase in the share of items recording inflation above 6 per cent. Of the 43 groups in the CPI basket, six recorded year-on-year inflation above 6 per cent in August, compared with three in April.

This is important because a rise in headline inflation accompanied by a low share of high-inflation items would suggest that the increase is being driven by isolated supply shocks. The RBI’s framework says a rise in the share of items in the higher inflation categories, alongside higher headline inflation, points towards more broad-based and generalised price pressures.

Core inflation is broadening too, but less sharply

The shift is not confined to headline CPI. The RBI also looked at the distribution of inflation after excluding food and fuel. It found a similar movement towards higher inflation categories, although the shift was less pronounced than for headline CPI.

Food and fuel are still doing much of the work in pushing headline inflation higher. But even after those categories are removed, the distribution of inflation is moving towards higher buckets. That means the broadening is not simply an illusion created by expensive food and energy.

So, the underlying inflation process is changing, but the shift in core inflation is smaller than that seen in headline inflation.

So, is inflation now broad-based?

The RBI’s evidence suggests that India’s inflation problem is beginning to move beyond food and fuel, but it would be too early to describe the process as fully generalised.

The initial rise was clearly led by food and fuel. But core inflation has moved higher even after excluding precious metals. Several non-food, non-fuel categories, including housing, restaurants and accommodation, clothing and footwear, education and health, are contributing to core inflation.

Services inflation, which had remained moderate through July, also increased in August. And the share of the CPI basket with inflation above 4 per cent rose sharply from 23 per cent in April to 37 per cent in August.

These indicators together make the broadening of inflation more significant than a simple increase in headline CPI.

What does the RBI see as the risk?

The RBI says inflation has been rising through 2026-27, first due to higher food and fuel prices and more recently because price pressures are spreading. Core inflation has also increased, showing “incipient signs of generalisation”.

The main concern is that supply shocks could lead to second-round effects, with higher food, fuel and input costs pushing up wages, services and prices across the economy. Risks remain from El Nino, a weak monsoon, uncertain food supplies and volatile global oil prices.