The report warned that an intensifying El Niño event could threaten soil moisture during the upcoming Rabi sowing season, while festive demand could add to inflationary pressures.
New Delhi: India’s inflation outlook faces continued risks from elevated crude oil prices, disruptions in maritime freight routes and potential El Niño-related agricultural disruptions, even as the government expects supply-side interventions to ease food prices, according to the Finance Ministry’s Monthly Economic Review for October 2026.
The report highlighted that managing inflation while sustaining economic growth would remain a key priority for policymakers during the second half of FY27, amid uncertainty surrounding global energy prices and domestic agricultural production.
“Near-term inflation dynamics will be shaped by a combination of domestic food supply management, global energy volatility, and systemic liquidity conditions,” the report stated.
However, the report warned that an intensifying El Niño event could threaten soil moisture during the upcoming Rabi sowing season, while festive demand could add to inflationary pressures.
“Externally, elevated crude oil prices and maritime freight disruptions across the West Asian transit routes pose ongoing upside risks to input costs,” it said.
The concerns come amid rising inflationary pressures, with headline retail inflation, measured by the Consumer Price Index (CPI), increasing by 71 basis points to 5.54 per cent in September 2026 from 4.83 per cent in August.
Food inflation climbed to 7.74 per cent, driven by rising prices of essential commodities, including onions, sugar, edible oils and rice, while core inflation increased to 4.33 per cent from 4.16 per cent in August.
Inflation in the fuel and power category accelerated to 25.85 per cent in September from 22.93 per cent in August, reflecting intensified cost pressures in global energy markets.
Against this backdrop, the report highlighted that recent RBI measures to provide direct dollar liquidity to public-sector oil marketing companies (OMCs) and curb currency speculation could help contain excessive exchange rate volatility and mitigate imported inflation.
It further stated that the effectiveness of the recent interest rate hike in containing secondary inflationary effects would depend on the central bank’s active liquidity management.
Despite persistent inflationary pressures, the Finance Ministry maintained that India’s economic fundamentals remained resilient, supported by strong industrial activity, domestic demand, credit growth and investment.
It noted that geopolitical tensions, energy price volatility and global financial tightening remained significant challenges to the economic outlook.
“Overall, while persistent geopolitical frictions, energy price volatility and global financial tightening remain key headwinds, the Indian economy may remain well-positioned to sustain its expansionary trajectory through the rest of FY27,” the report said.
The Ministry emphasised the importance of continued vigilance to preserve macroeconomic stability amid global supply uncertainties.
Meanwhile, the International Monetary Fund on Thursday said the impact of weather events such as the Super El Nino was yet to materialise for India, which remains the engine of growth for the world economy.
The IMF listed lower crop yields, increased food price inflation and its impact on the purchasing power of households in India due to the Super El Nino.
“So these are risks that we see that India faces, but right now those risks have not materialised,” IMF Communications Director Julie Kozack told a press conference here.
She said the IMF will reassess India’s growth projections in the January World Economic Outlook update after the risks posed by the weather event materialise.
Earlier this month, the IMF raised India’s growth forecast for fiscal year 2027 and fiscal year 2028 to 7 per cent, from the 6.4 per cent and 6.7 per cent projections respectively made in July.
“So, we see it really as a risk going forward, and of course depending on whether that risk materialises, we will reassess our growth projections for India the next time in our January WEO update,” Kozack said.
“But for now what we see is quite strong growth momentum in India, and it continues to be an engine of growth,” the IMF official said.
Kozack said the 7 per cent growth projection for FY-27 and FY-28 in the IMF’s World Economic Outlook report released in Bangkok earlier this month was supported by robust domestic demand and strong services activity in India.
ANI