India’s FY27E CPI inflation is expected to average between 4.8 per cent and 4.9 per cent, according to a report by Elara Capital, suggesting that the Reserve Bank of India (RBI) will likely maintain its current interest rate pause.

As per the report, any transition toward a rate hike remains unlikely unless headline inflation durably reaches the 6 per cent threshold and demonstrates significant persistence. This scenario may only materialise in the second half of FY27 if global crude oil prices stay above $100 per barrel.

“Overall, we maintain our FY27E CPI projection at an average of 4.8-4.9 per cent YoY and expect RBI MPC to remain on a pause till headline inflation durably reaches 6 per cent levels and shows persistence — whose probability is likely in H2FY27 conditioned on crude oil prices remaining elevated above $100/bl,” the report stated.

According to the report, the RBI is expected to remain data-dependent, keeping the repo rate unchanged as it monitors how external shocks and currency fluctuations filter through to the domestic retail market.

“The energy shock is likely to compel the RBI to stay on vigil whilst assessing growth-inflation impact as it unfolds. The sharp depreciation of the rupee is a further headwind limiting the RBI’s choices. For now, we expect RBI to focus on ensuring sufficient liquidity in the banking system while it awaits the passthrough of the energy shock, weaker rupee and input price increases into retail inflation,” the report added.

The report highlighted that India’s retail inflation for April 2026 reached 3.48 per cent on a YoY basis, showing a marginal uptick from the 3.4 per cent recorded in March. This figure marks the fourth consecutive month of rising prices, a trend primarily driven by costs in food, education, and restaurant services.

Food and beverage inflation reversed its trajectory in April, rising to 4.0 per cent from 3.7 per cent in the previous month. While vegetable and pulse prices saw a sequential decline, the costs for “readymade” meals, oils, and fruits climbed. This rise in food prices is expected to persist in the coming months due to rising temperatures and the potential second-round effects of upcoming retail fuel price adjustments.

The report also observed that restaurant prices rose to 4.2 per cent from 2.88 per cent in March, fuelled by the pass-through of commercial LPG price hikes and increased platform fees from online delivery services.

“The ongoing West Asia conflicts have increased upside risks to inflation through higher oil, gas and chemical prices, along with broader supply chain disruptions. Further rounds of household LPG price hikes or commercial LPG price hikes can add a second round of inflation shock,” the report noted.

Meanwhile, aviation turbine fuel prices have risen by approximately 15 per cent since the start of the West Asia conflict, leading to a 2 per cent hike in domestic airfares. The report warned that if retail petrol and diesel prices rise by ₹10 per litre in cities like Mumbai, “the first order impact of inflation is 47 bps, with a commensurate second round impact.”

Published on May 13, 2026