Crisil Ratings forecasts India's retail inflation to average 5.1% in FY27, up sharply from 2.0% in the previous financial year, citing persistent price pressures.
RBI rate hike possible: The rating agency sees the possibility of a 25-basis-point repo rate hike in the second half of the fiscal year if inflation remains elevated, prompting the central bank to closely monitor price trends.
Fuel and food remain key drivers: Higher petrol and diesel prices, rising LPG costs, elevated food inflation and global crude oil prices, along with a weaker rupee and El Niño-related weather risks, are expected to keep inflationary pressures alive.
Fuel, Food Prices to Keep Inflation Elevated; Crisil Sees 25-bps RBI Hike
Crisil projects India's retail inflation at 5.1% in FY27 and says the RBI could raise interest rates by 25 basis points if price pressures persist
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Crisil Ratings projects India's retail inflation will average 5.1 per cent in the financial year 2026-27, marking a sharp increase from 2.0 per cent in the previous year. "There is a possibility of a 25 basis points rate hike in the second half of the fiscal year if inflationary pressures persist," the rating agency said.
Consequently, the Reserve Bank of India is expected to closely monitor inflation before taking further policy action.
This projection follows a recent spike in domestic prices. India's consumer price index-based inflation accelerated to 4.4 per cent in June, up from 3.9 per cent in May. The June reading pushed retail inflation past the central bank's 4 per cent target for the first time since January 2025.
Fuel Costs Drive Surge
The recent inflation spike heavily reflects rising energy expenses. June data captured the complete impact of the mid-May petrol and diesel price increase of Rs 7.5 per litre.
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Consequently, fuel-related inflation jumped to 4.5 per cent in June compared with 1.9 per cent the previous month. Personal transport fuel costs saw a steeper climb, accelerating to 7.6 per cent from 3.1 per cent over the same period.
Household energy bills also expanded. Inflation for liquefied petroleum gas and piped natural gas doubled to 4.6 per cent, driven by increased domestic cooking gas rates. Looking ahead, global crude oil prices are forecast to average $82-87 per barrel this fiscal year. A depreciating rupee is further exacerbating imported inflation, Crisil noted.
Food and Core Pressures
Food prices continue to squeeze household budgets. Food inflation climbed to 5.3 per cent in June, up from 4.8 per cent in May. This segment experienced sustained high prices across edible oils, fruits, fish, milk, meat and prepared meals.
Agricultural output faces mounting risks from sub-par precipitation associated with El Nino.
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However, timely intervention by the government could help limit severe price spikes, the agency stated. Among vegetables, onion prices have re-entered inflationary territory. Concurrently, tomato inflation moderated and the deflation in potato prices narrowed.
Meanwhile, core inflation held steady at 3.9 per cent. This stability indicates that manufacturers are steadily transferring elevated costs for raw materials, transit and power onto buyers.