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India's retail inflation is expected to average 5-5.2 per cent in FY27, with rising food prices, weather-related disruptions and the ongoing West Asia conflict posing upside risks and potentially creating room for further Reserve Bank of India (RBI) rate hikes in the near term, according to a research report by Bank of Baroda.
The report noted inflationary pressures could intensify as higher input costs are passed on to consumers. It also flagged the possibility of elevated crude oil prices adding to fuel inflation, while underlying demand pressures could keep core inflation firm. India's consumer price index (CPI)-based inflation rose to 5.5 per cent year-on-year in September from 4.8 per cent in August, reaching a near two-year high. Consumer food price inflation accelerated to 7.7 per cent during the month, around 170 basis points higher than in August. Food prices were a major driver of the increase, with onion inflation surging to 108 per cent in September from 48.8 per cent in the previous month. Pulses inflation also increased to 4.7 per cent from 3.6 per cent, while edible oils, cereals, sugar, milk, dairy products, eggs, fruits and ready-made food recorded significant price pressures. The report noted that global food prices were also showing signs of pressure, with higher cereal and edible oil prices. Wheat prices increased amid logistical constraints in the Black Sea region, while maize prices rose due to lower-than-expected US yields and reduced export availability from Brazil. Higher palm oil prices also contributed to edible oil inflation. Core inflation, which excludes food and fuel, rose to 4.3 per cent in September. Transport inflation increased to 5 per cent from 4.6 per cent in August, while inflation in clothing and footwear climbed to 3.9 per cent from 3.6 per cent. Restaurant and accommodation services also contributed to higher core inflation. Bank of Baroda, in its report, highlighted deficient monsoon rainfall, lower reservoir levels and strengthening El Nio conditions as risks to food prices in the coming months. The ongoing West Asia conflict and elevated crude oil prices could further add to inflationary pressures. Headline inflation has remained above the RBI's 4 per cent target for the fourth consecutive month. The report said the impact of second-round price increases would also need close monitoring, as persistent inflation could strengthen the case for monetary tightening. (ANI)
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