The Reserve Bank of India raised its consumer price index-based inflation forecast for 2026-27 to 5.2% from 5.0% in August, flagging risks from a deficient monsoon, El Niño conditions, elevated global energy prices and widening food price pressures.

The RBI’s October monetary policy assessment reflects the increase in inflation to 4.8% in August from 4.5% in July, driven mainly by food and fuel prices. Core inflation also rose to 4.2% in August from 3.9% in each of the preceding three months, while core inflation excluding precious metals increased to 2.9%.

The central bank raised its inflation projections for the July–September, October–December and January–March quarters of 2026-27. Inflation for July–September is projected at 4.9%, compared with 4.7% in the August policy, while the October–December forecast was raised to 6.0% from 5.9%. The January–March projection increased to 5.7% from 5.5%.

For April–June 2027-28, the RBI projected inflation at 5.6%, against 5.3% in August. Core inflation for 2026-27 is projected at 4.4%, slightly higher than the earlier estimate of 4.3%.

The RBI said the near-term inflation outlook remained exposed to supply-side pressures from deficient monsoon rainfall, ongoing El Niño conditions and high energy and commodity prices, with higher costs continuing to pass through to consumers.

The southwest monsoon ended on September 30 with rainfall 13% below the long-period average. International oil prices also rose sharply: Brent crude prices averaged 22% higher in September than in July and 15% higher than in August. According to the Petroleum Planning and Analysis Cell, the Indian crude oil basket averaged $116.1 per barrel in September, up from $90.2 in August and $82.0 in July.

Food inflation pressures have broadened, with sugar and onion prices recording sharp increases. Sugar prices rose about 34% from early July to ₹64 per kg by end-August, while onion prices increased around 85% between end-June and end-September. Government measures helped ease sugar price pressures, with prices retreating gradually in September.

The RBI also noted early signs of inflation becoming more generalised. The weighted share of CPI items recording inflation above 4% rose to about 37% in August. However, it said there were only limited signs of supply-side pressures becoming embedded in firms’ pricing behaviour, despite some evidence of elevated inflation expectations.

The central bank said strong growth in monetary and credit aggregates posed risks of demand-side pressures, although evidence of such pressures remained limited.

Separately, the RBI’s October Monetary Policy Report projected CPI inflation to average 5.0% in 2027-28, assuming a normal monsoon and no further external or policy shocks.