The Reserve Bank of India (RBI) on Wednesday raised its CPI inflation projection for FY27 to 5.2 per cent from the 5 per cent projected at its August MPC meeting, as price pressures broadened across food and other components of the consumption basket.
The RBI now projects CPI inflation at 4.9 per cent for Q2, 6 per cent for Q3 and 5.7 per cent for Q4. Inflation for Q1 of FY28 is projected at 5.6 per cent, with risks to the outlook assessed to be evenly balanced.
The revised inflation outlook reflects growing evidence of broad-based price pressures, with the Reserve Bank flagging increases across food items as well as a rise in core inflation.
Food price increases have become more broad-based, with notable spikes in commodities such as sugar and onion, RBI Governor Sanjay Malhotra said.
Fuel inflation also increased in August, largely due to unfavourable base effects.
Core inflation rose to 4.2 per cent in August, after remaining unchanged at 3.9 per cent for three consecutive months. Core inflation excluding precious metals increased to 2.9 per cent.
The broadening of price pressures was also visible in inflation diffusion indices, with the weighted share of items recording inflation above 4 per cent increasing to around 37 per cent in August.
Supply-side pressures
The near-term inflation outlook points to continued supply-side pressures arising from multiple factors, including a deficient southwest monsoon, El Nino conditions and high volatility in international oil prices, Malhtora said.
Price pressures are increasingly evident across a wider range of food-related commodities, while movements in global oil prices pose an additional risk to the inflation outlook.
The RBI also flagged early signs of inflation becoming more generalised, as reflected in higher core inflation and rising inflation across a larger segment of the CPI basket.
The inflation outlook was a key consideration in the MPC’s decision to raise the policy repo rate by 25 basis points to 5.50 per cent and change its monetary policy stance to “calibrated tightening”.
The central bank has indicated that rate cuts are off the table in the near term, with future policy action likely to be either a rate hike or a pause depending on evolving inflation and growth conditions.
