India's Middle Class Struggles as Inflation Eats into Salary Hikes

For India's middle class, the promise of a bigger paycheque often seems to be an illusion. Despite average salary hikes of around 9%, households are reporting higher spending on essentials, rising financial commitments, and declining confidence about the economy.

According to the Reserve Bank of India's (RBI) September 2026 survey. 90.1% of urban households were spending more on essentials than a year ago. Meanwhile, 54.5% felt the economic situation had worsened, compared with 40.9% in September 2025.

The biggest source of pressure is increasingly visible in grocery bills. Retail inflation climbed to 5.54% in September this year, its highest level under the new Consumer Price Index (CPI) series.

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September's inflation rate surged to 7.74%, a notable uptick from August's 5.97%. The surge was particularly pronounced for staple kitchen items, with some essentials witnessing substantial price hikes. Onions, for instance, have seen a 108% year-over-year increase.

Meanwhile, ginger prices have jumped by 63%, and garlic costs have risen by 55%.

Households are increasingly prioritising basic needs and becoming more selective about discretionary purchases. Higher rent, tuition fees, medical expenses and utility bills were leaving households with fewer options to adjust their budgets.

"Today, families find themselves having tighter household budgets due to the rising expenses in basic necessities like accommodation, education, health care, food and transport," said Jyoti Prakash Gadia, managing director of Resurgent India Limited.

Household confidence has also weakened. The RBI's urban current situation index fell from 96.9 in September 2025 to 87.9 in September 2026. Its rural counterpart declined from 100.9 to 90.6.

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According to the ministry of statistics and programme implementation's (MoSPI) latest Periodic Labour Force Survey for 2025. Average monthly earnings of regular salaried men increased by 5.8%, from Rs 22,891 to Rs 24,217. For women, the increase was 7.2%, from Rs 17,126 to Rs 18,353.

Despite the Reserve Bank of India's official inflation rate, a more nuanced picture emerges from its consumer surveys. In September, households estimated their median inflation at 8.4% and forecast it would hit 10% by the following year.

Rising oil prices could make the squeeze worse. Fuel prices have added another layer of uncertainty, with petrol and diesel prices increased by Rs 3 per litre on May 15. This marked their first hike in nearly four years.