RBI raises FY27 inflation to 5.1% as higher fuel price impacts input costs

New Delhi: The Reserve Bank of India (RBI) on Friday projected the retail inflation for 2026-27 at 5.1 percent, higher from its earlier estimate of 4.6 percent, largely due to mounting input costs, triggered by the pass-through of higher global energy prices to retail rates of petrol and diesel.

Since May, retail fuel prices have been raised cumulatively by 7.4 percent for petrol and 8.4 percent for diesel.

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The increase implies a direct impact of about 36 basis points on headline inflation, which, along with second order effects, would get reflected in consumer price (CPI) inflation in the coming months, the RBI said in its monetary policy statement.

Pass-through of higher global energy prices are also visible in several other inputs such as commercial LPG, industrial raw materials, chemicals, rubber and plastic products, it said, and added the second-round impact of higher input costs could exert upside pressure on CPI inflation going forward.

Announcing the June monetary policy, Reserve Bank Governor Sanjay Malhotra also said the inflation forecast is subject to upside risks due to global supply chain disruptions, commodity price shocks, uncertainty about distribution of the monsoon and El Nino conditions.

Although firming up marginally from 3.2 percent in February, headline CPI inflation was below the target during March and April 2026 (3.4 percent and 3.5 percent, respectively).

While food inflation edged up, fuel inflation remained muted as retail prices of petrol and diesel were unchanged in March and April. Core inflation remained stable at 3.7 percent during March-April.

Excluding precious metals, core inflation was much lower at 2.1-2.2 percent during the same period.

"International crude oil prices (Indian basket) have averaged around USD 110/barrel during April-May 2026 and indications are that average oil prices for 2026-27 would be substantially higher than what were assumed during the last policy statement," Malhotra said.

Higher energy prices and an increase in several input prices also led to a sharp spike in wholesale price index (WPI) inflation in April 2026, he noted.

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The Q1 CPI inflation has been projected at 4.2 percent; Q2 at 5.1 percent; Q3 at 5.9 percent; and Q4 at 5.4 percent. Core inflation is projected at 4.7 percent for 2026-27.

RBI also said that adequate stock of foodgrains and satisfactory reservoir levels provide some comfort.

The Governor Malhotra also said the food outlook remains uncertain on account of the subnormal south-west monsoon forecast and El Nino.

Although risks of higher inflation have amplified, the MPC felt it would be prudent to wait for greater clarity to emerge, he added.

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