Mediaeye News
New Delhi: This year, El Niño could impact agricultural output and food costs, with analysts projecting FY27 inflation to settle between 5.2 and 5.5 per cent despite healthy reservoir levels.
There is 80 per cent likelihood of an El Niño event during the June–August period, and probabilities for this to continue until at least November are near or above 90 per cent, according to a new report. However, the reservoir level is more than normal storage (till June 11) in the country, and the arrivals statistics of vegetables are also satisfactory.
“Only the coming days will tell us whether the supply conditions are sufficient from any incipient shock from food and fuel on inflation or not”, said the Bank of Baroda Research note.
Meanwhile, according to economist Dipanwita Mazumdar, CPI inflation is projected to settle in the range of 5.2 per cent–5.5 per cent in FY27, assuming some impact from El Niño and an average crude oil price of $90–100 per barrel.
Headline CPI inflation came in at 3.9 per cent in May 2026, lower than BoB Research’s estimate of 4.1 per cent and up from 3.5 per cent in April.
The increase was largely driven by higher food and fuel prices, with food inflation rising to 4.8 per cent.
Transport inflation accelerated following the recent petrol and diesel price hikes, while restaurant and accommodation services inflation also moved higher.
Core inflation (excluding food and fuel) increased to 3.9 per cent, indicating emerging underlying price pressures.
Looking ahead, BoB Research expects inflationary risks from higher fuel costs and weather-related uncertainties, particularly the likelihood of El Niño conditions impacting food prices.
“For food inflation, the spillover of higher fuel costs and likely increase in freight costs might feed into further high inflation in the near term. Hence, the second-round pass-through needs to be closely monitored, especially when weather-related risks are elevated this year,” said the report.
Going forward, “we believe that upside risks to core will intensify as firms might pass through some degree of higher input costs to consumers amidst stable demand conditions. The risks of food inflation are also likely to intensify in the coming days,” the report added.
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—IANS
