India’s Central Bank Raises FY2026-27 Inflation Forecast to 5.1% on Rising Energy Costs

By Mahima Katal

Mumbai, June 5: The Reserve Bank of India (RBI) on Friday raised its inflation forecast for the 2026-27 financial year to 5.1%, up from its earlier estimate of 4.6%, citing the impact of higher global energy prices on domestic fuel and input costs.

In its latest monetary policy statement, the RBI said the increase in retail fuel prices since May is expected to push up consumer inflation in the coming months. Petrol prices have risen by 7.4% and diesel prices by 8.4% cumulatively, resulting in a direct impact of around 36 basis points on headline inflation.

The central bank noted that higher global energy prices are also feeding into costs across multiple sectors, including commercial liquefied petroleum gas (LPG), industrial raw materials, chemicals, rubber and plastic products. These increases are likely to generate broader inflationary pressures through higher production and transportation costs.

RBI Governor Sanjay Malhotra said the inflation outlook remains vulnerable to several risks, including global supply chain disruptions, commodity price volatility, uncertainty surrounding the monsoon season, and the potential effects of El Niño weather conditions.

India’s consumer price inflation (CPI) remained below the RBI’s target level in recent months, registering 3.4% in Marchand 3.5% in April 2026, although food inflation showed signs of firming. Core inflation, which excludes food and fuel, remained stable at 3.7% during the two-month period.

Malhotra highlighted that international crude oil prices, measured through India’s import basket, averaged around $110 per barrel during April and May. The RBI expects average oil prices during 2026-27 to remain significantly higher than assumptions made during its previous policy review.

The central bank also pointed to a sharp rise in wholesale price inflation in April, driven by elevated energy and input costs.

For the current fiscal year, the RBI projects quarterly CPI inflation at 4.2% in the first quarter, 5.1% in the second quarter, 5.9% in the third quarter, and 5.4% in the fourth quarter. Core inflation is forecast at 4.7% for the year.

Despite the upward revision, the RBI said adequate foodgrain stocks and healthy reservoir levels provide some buffer against food price pressures. However, the food inflation outlook remains uncertain due to forecasts of a below-normal southwest monsoon and the possible emergence of El Niño conditions.

While inflation risks have intensified, the Monetary Policy Committee (MPC) decided it would be prudent to await greater clarity on evolving economic conditions before taking further action, Malhotra said.