Retail inflation in India is expected to average 5 per cent in FY27, as pricing pressures spread to the food, energy and core industries, according to an ICICI Bank Global Markets study.
The Monetary Policy Committee may raise policy rates by 50-75 basis points, which has already been included into higher second-half estimates, the study shows.
The Consumer Price Index (CPI) increased from 3.48 per cent year-on-year (YoY) in April to a 16-month high of 3.94 per cent YoY in May, with food inflation reaching 4.8 per cent and energy rising rapidly to 1.9 per cent from 0.4 per cent in April.
After five straight months of decline, inflation reached a 10-month high of 5.7% YoY, with vegetables leading the food spike, the study outlined.
Sharp month-over-month increases in tomatoes (26 per cent), cauliflower (12 per cent), cabbage (11 percent) and potatoes (4.5 per cent) were triggered due to extreme heat. Fresh meat and oils and fats increased by 9.5 per cent year over year, while fruits and nuts rose by 8.2 percent, fish and seafood by 7.5 per cent, and spices and seeds by 6.8 per cent.
Furthermore, restaurant services had a 5.7 per cent YoY increase, apparel and footwear saw a 3.0 percent YoY increase, and household goods and appliances saw a 1.9 per cent YoY rise. Core inflation, excluding jewellry, climbed to 2.4 per cent YoY from 2.2 per cent.
The output of rain-fed crops, such as pulses, oilseeds, coarse cereals, and spices, is threatened by a below-normal monsoon that is currently 10 per cent below the long-period average. Meanwhile, the conflict in West Asia continues to drive up input costs for appliances and household goods.
The recent decline in oil prices provides some respite, but unless geopolitical tensions significantly ease, the inflation outlook is still skewed upward.
