RBI projects CPI inflation at 5.2% for FY27 amid supply-side risks

The RBI projects CPI inflation at 5.2% for FY27, with a surge to 6% in Q3 due to rising food and fuel prices. Citing supply-side risks and geopolitical uncertainty, the central bank raised the repo rate by 25 basis points to 5.5%.

The Reserve Bank of India (RBI) projected Consumer Price Index (CPI) inflation at 5.2 per cent for FY27, with inflation expected to rise to 6 per cent in the third quarter, mainly due to broadening food and fuel price pressures and elevated supply-side risks.

RBI Governor Sanjay Malhotra, while speaking at the Monetary Policy Committee (MPC) meeting, said, “Considering all factors, CPI inflation for this year is projected to be 5.2 per cent, with Q2 at 4.9, Q3 at 6 and Q4 at 5.7 per cent, with the risks being evenly balanced. CPI inflation for the first quarter of the next year was projected at 5.6 per cent."

Drivers of Recent Inflation Spike

CPI inflation rose to 4.8 per cent in August from 4.5 per cent in July. “This was largely driven by higher inflation in food and fuel components,” the Governor said.

Food price increases have become more broad-based, along with spikes in certain items such as sugar and onion. Fuel inflation also inched up in August, mostly due to “unfavourable base effects”.

Core inflation rose to 4.2 per cent in August after remaining at 3.9 per cent for three consecutive months. Core inflation excluding precious metals stood at 2.9 per cent in August.

Broadening Price Pressures and Future Outlook

The broadening of price pressures was also visible in diffusion indices, with the weighted share of items recording inflation over 4 per cent increasing to about 37 per cent in August.

“The near-term outlook on inflation points towards continued pressures from the supply side on account of a variety of reasons,” the Governor said, pointing to the deficient southwest monsoon, El Nino and further citing increased volatility in international oil prices as crude remains above USD 101 per barrel at the time of filing this report.

The RBI said price pressures were increasingly becoming visible in food commodities apart from oil. It also noted early signs of inflation becoming generalised from heightened core inflation and higher inflation across a large segment of the CPI basket. Core inflation for the year was projected at 4.4 per cent, while headline inflation for FY26-27 was projected at 5.8 per cent.

RBI's Monetary Policy Response

RBI has raised the repo rate by 25 basis points to 5.5 per cent, with the Governor citing rising geopolitical uncertainty, persistent inflation risks, the deficient southwest monsoon and the West Asia conflict among the factors influencing the decision.

The central bank has also changed its stance from neutral to ‘calibrated tightening’.

Global Factors and Future Policy Stance

RBI took into account rising global bond yields and a more hawkish stance among other central banks, saying the evolution of the inflation outlook will remain a key concern for monetary policy going forward.

(ANI)

(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)