RBI Raises Inflation Forecast: What It Means for Consumers in 2026-27
RBI's Updated Inflation Projections
Mumbai: The Reserve Bank of India (RBI) has revised its retail inflation forecast for the fiscal year 2026-27 to 5.1%, an increase from the previous estimate of 4.6%. This adjustment is primarily attributed to rising input costs, which have been influenced by the transmission of elevated global energy prices to domestic fuel rates.
Since May, the cumulative increase in retail fuel prices has reached 7.4% for petrol and 8.4% for diesel.
This rise is expected to directly contribute approximately 36 basis points to overall inflation, with additional effects likely to be seen in consumer price index (CPI) inflation in the upcoming months, as stated in the RBI's monetary policy announcement.
The impact of higher global energy prices is also evident in various other sectors, including commercial LPG, industrial raw materials, chemicals, and rubber and plastic products. The RBI noted that the secondary effects of these increased input costs could further elevate CPI inflation in the future.
During the announcement of the June monetary policy, RBI Governor Sanjay Malhotra highlighted that the inflation outlook faces potential upward risks due to global supply chain challenges, commodity price fluctuations, and uncertainties surrounding monsoon distribution and El Nino conditions.
Despite a slight increase from 3.2% in February, the headline CPI inflation remained below the target in March and April 2026, recorded at 3.4% and 3.5%, respectively.
While food inflation saw a rise, fuel inflation remained stable as petrol and diesel prices did not change in March and April. Core inflation held steady at 3.7% during this period.
When excluding precious metals, core inflation was significantly lower, ranging from 2.1% to 2.2%.
Malhotra mentioned that international crude oil prices for the Indian basket averaged around USD 110 per barrel during April-May 2026, with expectations that average oil prices for 2026-27 would be considerably higher than previously estimated.
The increase in energy prices and various input costs has also resulted in a notable rise in wholesale price index (WPI) inflation in April 2026.
The RBI has projected CPI inflation for Q1 at 4.2%, Q2 at 5.1%, Q3 at 5.9%, and Q4 at 5.4%. Core inflation is anticipated to be 4.7% for 2026-27.
The RBI also indicated that sufficient foodgrain stocks and satisfactory reservoir levels offer some reassurance.
However, Governor Malhotra cautioned that the food outlook remains uncertain due to the forecast of a below-normal southwest monsoon and El Nino.
Despite the heightened risks of inflation, the Monetary Policy Committee (MPC) believes it is wise to await clearer insights before making further decisions.