Inflation likely to average 5.1% in FY27 as price pressures intensify: Crisil

India’s retail inflation is likely to accelerate in the coming months as an adverse base effect for food prices, higher edible oil costs and a gradual pass-through of elevated input costs put renewed pressure on consumer prices, Crisil said in its latest macroeconomic report.

Crisil said the favourable statistical base effect from the sharp increase in vegetable and edible oil prices in the corresponding period last year had limited the rise in food inflation so far. However, this benefit is expected to fade in the months ahead.

What Happened

Food price pressures were uneven in July. Prices of milk, dairy products and eggs, fish and seafood, and ready-made food products also hardened.

• The rating agency expects consumer price index (CPI)-based inflation to average 5.1% in 2026-27, sharply higher than 2% recorded in the previous financial year.

• Headline retail inflation rose marginally to 4.45% in July from 4.38% in June, while food inflation increased to 5.5% from 5.3%.

• Core inflation remained broadly unchanged at 3.9% for the third consecutive month, although it edged up to 2.6% from 2.5% when gold and silver are excluded.

Key Details

The report also flagged rising global vegetable oil prices as a concern. A key emerging pressure is transportation costs.

• Inflation in cereals and pulses rose considerably, while meat inflation surged to 15.3% from 9.7%.

• At the same time, vegetable inflation eased considerably to 1% from 5.6%, helped by easing prices of potatoes and tomatoes.

• Onion inflation, however, surged to 22.6% from 4.7%.

Why It Matters

While retail fuel prices have risen moderately, producers have faced a sharper increase in transportation costs. Transport-related inflation in wholesale prices rose to around 46% during April-June, part of which Crisil expects to be gradually passed on to consumers.

• The FAO Vegetable Oil Price Index reached its highest level since June 2022 in July, even as domestic vegetable oil inflation moderated due to a favourable base.

• Fuel-related inflation rose slightly to 4.6% from 4.5%, mainly due to higher cooking fuel prices.

What Reports Say

Coverage of the story so far points to:

• LPG and piped natural gas inflation increased to 5% from 4.6%, with July reflecting the full impact of a ₹29 increase in domestic LPG cylinder prices announced in June.

• Since the beginning of the West Asia conflict, domestic LPG prices have risen by a cumulative ₹89 per cylinder, Crisil said.

• Continued reporting by Fortune India as more details emerge