Rising Inflation in India: RBI on Alert as Pressures Mount

India's retail inflation is set to rise amid increased fuel costs, higher input prices, a depreciated rupee, and weather-related risks. Crisil Ratings predict a potential rate hike by RBI, as inflation pressures persist, forecasting a 5.1% average in FY27, up from 2% in FY26.

India's retail inflation is projected to face upward pressure for the remainder of the fiscal year due to rising fuel prices, higher input costs, a weakening rupee, and potential weather-related threats to food prices. This scenario is prompting the Reserve Bank of India (RBI) to maintain vigilance over the inflation trends before deciding on future policy changes, as reported by Crisil Ratings. The report anticipates Consumer Price Index (CPI)-based inflation to average 5.1 percent in fiscal year 2027, a notable increase from the 2.0 percent recorded in the previous year, with a possibility of a 25 basis points rate hike in the latter half of the year if these inflationary pressures persist.

The inflation rate for retail commodities in India increased to 4.4 percent in June, up from 3.9 percent in May, surpassing the RBI's established 4 percent target for the first time since January 2025. This rise was attributed to increases in both food and non-food sectors, with food inflation reaching 5.3 percent from 4.8 percent, compounded by a significant acceleration in fuel-related inflation. According to the report, June marked the initial month reflecting the cumulative impact of a Rs 7.5 per litre rise in petrol and diesel prices announced in mid-May. Fuel-related inflation soared to 4.5 percent, up from 1.9 percent in May, with costs for personal transport fuels surging to 7.6 percent from 3.1 percent. Inflation in liquefied petroleum gas (LPG) and piped natural gas also doubled to 4.6 percent, following an increase in domestic cooking gas prices.

Crisil notes that crude oil prices, while not at their recent peaks, are expected to stay elevated this fiscal year, averaging between USD 82-87 per barrel, while a weaker rupee enhances imported inflation. Producers are incrementally transferring higher energy, transport, and input costs to consumers, likely elevating core inflation over time. Additionally, the report cautioned that subpar rainfall due to El Nino conditions could affect agricultural yields and exacerbate food inflation, though timely governmental intervention might help moderate price fluctuations. The report highlights the sustained high inflation in meat, milk, fish, fruits, edible oils, and ready-made foods, with onion prices again inflationary, while inflation in tomatoes subsided and potato deflation narrowed. Core inflation remained relatively stable at 3.9 percent, suggesting a gradual consumer cost pass-through continues, the report concluded. (ANI)