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Informist, Friday, May 29, 2026

 

--RBI: Inflation in FY27 seen aligned with 4% target

--RBI: Spike in global fuel prices poses upside risks to inflation

 

NEW DELHI – India's headline inflation for 2026-27 (Apr-Mar) is likely to remain aligned with the Reserve Bank of India's medium-term target of 4%, with upside risk arising from the evolving situation in West Asia, the central bank said Friday. Adequate foodgrain stocks, sufficient reservoir levels, and stable agricultural prospects are positive for the inflation outlook, the RBI said in its Annual Report for FY26.

 

"However, the evolving upside risks to inflation may emanate from multiple other factors such as spike in global fuel and commodity prices amid geopolitical tensions, potential spillovers to input and wage costs, and volatility in exchange rate," the RBI said. Other than the geopolitical risk due to war, inflation may rise because of "possible El Nino conditions and above-normal summer temperature". 

 

The RBI projects CPI inflation rising to 4.6% in FY27 from 2.1% last year. Headline inflation moderated in FY26, mainly due to deflation in food and strong favourable base effect. "Rationalisation and simplification of GST (goods and services tax) rates in September 2025 also helped limit price pressures across several goods and services," the report said.

 

The West Asia conflict and the "attendant risks of elevated energy prices, supply chain disruptions, financial market volatility, uncertainty surrounding global trade policies, and weather-related disruptions could pose headwinds to growth and inflation in the short run," the RBI said. 

 

The war in West Asia has pushed up energy prices, the imapct of which is now being felt in India with oil marketing companies raising prices of petrol and diesel by over INR 7 per litre in May. The impact of higher fuel prices is expected to be seen in the CPI inflation print for May, while WPI already surged in April. 

 

In April, CPI inflation rose to 3.5% from 3.4% a month ago. However, WPI inflation jumped to a 42-month high of 8.3% in April from 3.9% in March. April marked a divergence in the WPI and CPI inflation, after having moved broadly in line over the past year. 

 

WPI inflation averaged 0.7% in FY26, while CPI inflation was at 2.1%. "Although there have been periods of divergence between WPI and CPI in the past, the two have moved in tandem in the recent period," the report said. 

 

With the evolving growth-inflation dynamics due to the war, central banks may need to "carefully balance the objective of containing inflation against the need to minimise adverse spillovers on growth, warranting cautious calibration of monetary policy paths," the RBI said in the report.  End

 

Reported by Shweta

Edited by Avishek Dutta

 

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