Retail inflation in India likely ended a three-month downward trajectory last month as food prices soared, which will likely further pressure the central bank to adopt a more aggressive rate hike stance.

According to a Reuters poll of economists, food inflation is forecast to have surged as prices of essential crops were pushed higher by a heatwave, impacting household budgets.

Despite the government restricting exports of wheat flour at the end of August, the consumer price index showed inflation likely rose to an annual 6.90% last month, compared to 6.71% in July, according to the findings from the Reuters poll.

Forecasts for the data, due to be published on Monday, ranged between 6.30% and 7.37%, with over 25% of economists polled predicting 7.0% or higher.

"Food prices have actually gone up for major cereals, pulses and vegetables on an annual basis because of the production challenges and shortfalls caused by a blistering heatwave," said Kunal Kundu, Societe Generale India economist.

He added that food prices would likely remain high over the next few months due to inconsistent monsoon patterns throughout the country leading to further crop damages, the Reuters report adds.

The projections from the central bank revealed inflation remaining over 6% - the high end of its target band – until early next year.

The Reserve Bank of India was forecast to increase the repo rate by a further 60 basis points through until the end of March to 6.00%. This followed on from the all-time low rate of 4.00% during the pandemic, an additional Reuters survey revealed.

Interest rates are increasing despite the economy likely to experience a sharp slowdown. In addition, the central bank is spending billions of dollars every month in currency reserves to bolster the Rupee, which has been trading close to all-time lows of around 80 per dollar for several months.