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India's retail inflation accelerated in September to a five-month high of 7.41% year-on-year as food prices surged, raising fears of further interest-rate hikes when the central bank meets for its next policy review in December.

The data shows retail inflation remaining above the Reserve Bank of India's target for three quarters, implying it will have to report to the government why it failed to meet the target and what actions it will need to take.

The RBI's Monetary Policy Committee (MPC), established in 2016, is mandated to keep inflation within 2 percentage points on either side of its 4% target.

RBI and Prime Minister Narendra Modi's administration agree that inflation was driven by external factors such as surging energy and food prices after Russia's Feb. 24 invasion of Ukraine, officials say, and it would take a longer period to tame prices.

The MPC has raised rates by 190 basis points since May, and economists expect it to raise rates by at least 25 bps at its next meeting Dec. 5-7.

Garima Kapoor, an economist at Elara Capital, said retail inflation was likely to ease to an average of 6% only by January-March.

"We expect the Monetary Policy Committee (MPC) to hike policy repo rate by another 40-50 bps this financial year," she said, and higher inflation could mean further rate hikes.

Annual retail inflation (INCPIY=ECI) in September was higher than the 7.3% forecast by economists in a Reuters poll, and above 7% the previous month, data released by the National Statistics Office on Wednesday showed.

Food inflation, which accounts for nearly 40% of the CPI basket, rose 8.60% in September, compared to 7.62% in August.

Over 10% depreciation of India's rupee against the dollar this year has made imports costlier for consumers and businesses.

STICKY MANUFACTURING INFLATION

Economists fret that despite rate hikes, inflation could remain sticky at least for a quarter as a pick-up in consumer demand during the festival season starting late September has encouraged companies to jack up prices.

Companies have also raised prices of other goods like smart televisions, mobiles, garments, and footwear to partly cover the rise in input costs earlier this year.

Core inflation, excluding volatile food and energy prices, was estimated at 6.07%-6.1% in September, compared with 5.84%-5.90% estimated in August, said three economists after the data release.

The International Monetary Fund on Tuesday cut its growth forecast for India to 6.8% for 2022/23. (Reuters)