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 on Thursday.

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. It said the risks to its inflation outlook remain tilted to the upside.

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.

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.

Food price pressures were uneven in July. Inflation in cereals and pulses rose considerably, while meat inflation surged to 15.3% from 9.7%. Prices of milk, dairy products and eggs, fish and seafood, and ready-made food products also hardened. 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%.

The report also flagged rising global vegetable oil prices as a concern. 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. 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.

A key emerging pressure is transportation costs. 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 report also pointed to higher inflation in transport services and restaurants and accommodation, suggesting that elevated energy and input costs are increasingly reaching consumers. Restaurant and accommodation inflation rose to 7.7% in July from 6.9% in June, while domestic airfare inflation jumped to 22.9% from 10.1%.

Uneven monsoon rainfall remains another risk to the food inflation outlook. While sowing is nearing completion for most crops, rainfall during the remaining monsoon period will be important for yields, particularly if precipitation turns deficient.