Brace for impact: On rising inflation and external factors

India’s much-hyped domestic economic resilience is set to be tested over the next few months as external factors start to impose inescapable pressures. A case in point is inflation. The latest data on retail inflation show that it crossed the Reserve Bank of India’s 6% upper comfort limit in October 2026. According to economists, this is likely to continue through the third quarter of this financial year, which means at least two more months of high inflation. Agricultural shortfalls brought on by a patchy and deficient monsoon have meant that food inflation rose sharply to 8.5% in October 2026. Elevated fuel prices meant that inflation in the transport category also rose sharply. What is worse is that high inflation is spreading to almost every aspect of a household’s day-to-day needs. In fact, the latest Consumer Price Index (CPI) data show that 10 of the 12 major categories saw inflation in October, hitting their highest levels recorded in the new series of the index. So, things such as clothing, footwear, housing, furnishings, and services such as healthcare, education, communication, recreation, and restaurant and hospitality are not only getting more expensive, but they are doing so at an accelerating rate. This would have been bad enough had wages been increasing in real terms. Yet, the latest research by Data for India on the country’s official wage statistics shows that, while nominal wages doubled from 2012 to 2024, they actually fell 4% over the same period after adjusting for inflation. And this is sharper for high-skilled and high-earning workers. Lower wage earners saw marginal increases over this period. While this is of some comfort, it is the higher wage earners that drive consumption in an economy. Real wage contraction for them, which is likely to have worsened in 2026, will hit consumption levels and private investment.Further, there is strong evidence to suggest that the official inflation metrics are not capturing the full extent of rising prices. Data on cash with the public and UPI transactions show the value of both has been growing in double digits over the last year and more, significantly outpacing nominal GDP growth. This either suggests that the informal economy is far larger than earlier thought or, more likely, that inflation is well above what the official figures are being able to capture. Unfortunately, there are no real magic-wand fixes to this situation. Inflation is largely beyond the government’s control, and wage growth cannot happen overnight. The only way forward is to continue trying to spur sector-specific growth and warn people of the impending storm. Published - November 14, 2026 12:15 am IST