| Quarterly inflation path: 4.0% (Q1), 4.4% (Q2), 5.2% (Q3), 4.7% (Q4).
Energy price spikes from conflict emerging as key upside risk. Food outlook comfortable, but El Nino poses risk. Geopolitical spillovers may hit growth, liquidity and demand |
The Reserve Bank of India (RBI) has projected retail inflation at 4.6 per cent for 2026-27, with risks tilted to the upside, as elevated global uncertainties-particularly from the ongoing conflict-pose fresh pressures through multiple transmission channels.
“CPI inflation for 2026-27 is projected at 4.6 per cent with Q1 at 4.0 per cent; Q2 at 4.4 per cent; Q3 at 5.2 per cent; and Q4 at 4.7 per cent. Core inflation is projected at 4.4 per cent. Excluding precious metals, core inflation is even lower indicating that underlying inflation pressures are expected to remain contained. The risks are on the upside,” RBI governor Sanjay Malhotra said in s Monetary Policy Statement.
The RBI said recent spikes in energy prices due to the conflict have emerged as a risk. Although retail prices of petrol and diesel have remained unchanged so far, the pass-through of higher global energy prices has resulted in some price increases in a few other fuel items.
Food price outlook remains comfortable in the near term, supported by robust rabi production, adequate reservoir levels and comfortable buffer stocks of foodgrains. The likely emergence of El Nino conditions, however, could pose a risk.
The geopolitical impact
The governor said the Indian economy may be impacted by the ongoing geopolitical conflict through several channels. Elevated crude oil prices could increase imported inflation and widen the current account deficit. Disruptions in energy markets, fertilisers and other commodities may adversely impact industry, agriculture and services, reducing domestic output.
Heightened uncertainty, increased risk aversion and safe haven demand could affect domestic liquidity conditions, economic activity, consumption and investment.
Weaker global growth prospects may dampen external demand and reduce remittance flows, while adverse spillovers from global financial markets could tighten domestic financial conditions and raise borrowing costs. The RBI said the initial supply shock can potentially transform into a demand shock over the medium term if the restoration of supply chains is delayed.
Stating that recent inflation readings remained benign, Malhotra said headline inflation stood at 2.7 per cent in January and 3.2 per cent in February, remaining below target. Food group inflation recorded 1.3 per cent, compared with deflation in the previous four months, while inflation in fuel items was modest. Core inflation was at 3.7 per cent, with underlying price pressures benign, as reflected in much lower core inflation excluding precious metals at 2.1 per cent.
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