Crisil notes that a persistent rise in global prices could see retail fuel prices for cooking and transportation climb up further
Crisil has raised its inflation forecast for the current financial year (FY27) from 4.5 per cent to 4.7 per cent. The revision comes amid the prolonged West Asia conflict and high energy prices. While higher crude oil prices are currently being mostly absorbed by the government, a persistent rise in global prices could see retail fuel prices for cooking and transportation climb up further, the report stated.
Crisil noted that the second-round effects on core inflation via higher energy, trade and transportation costs are likely. The adverse impact of heatwaves and the increased risk from a below-normal southwest monsoon are upside risks to food inflation.
The Indian Meteorological Department’s first long range forecast (released on 13 April) predicts a below-normal southwest monsoon in 2026 at 92 per cent of the long period average with a model margin error of +/- 5 per cent. El Niño conditions, which typically weaken the Indian monsoon, are “very likely expected” as per IMD.
India’s Consumer Price Index (CPI) series rose to 3.4 per cent in March from 3.2 per cent in February, driven by upticks in both food and fuel inflation. While food inflation rose on a low base, the uptick in fuel was driven by the increase in domestic cooking fuel prices. However, despite a full month since the onset of the conflict, retail inflation showed a relatively low impact of the energy shock.
Brent crude oil spot prices rose 45 per cent in March, while international natural gas prices soared around 69 per cent compared with February. Cooking fuel prices saw some price pressures, the price of domestic LPG cylinders was increased by Rs 60 in early March, while the government kept retail prices of petrol and diesel (combined weight of 4.8 per cent in CPI) largely unchanged, choosing to absorb the price pressures itself.
The report noted that in April so far, consumers have been shielded from the rise in energy prices with the government announcing a cut in excise duty on petrol and diesel starting late March. Core inflation, too, remained contained as second-round effects stemming from higher energy prices are yet to play out. Furthermore, slower gold and silver inflation (in line with the correction in global prices and a high base) also lent support.
