A Bank of Baroda research report projects India's retail inflation at roughly 5 to 5.2 per cent through FY27, identifying food price pressures, weather-driven supply disruptions, and the continuing conflict in West Asia as factors that could push that figure higher and leave the Reserve Bank of India with grounds to raise borrowing costs further in the months ahead.

Businesses facing steeper production expenses are likely to transfer those added costs along the supply chain, a dynamic the report flagged as a potential driver of further price increases for end buyers. Heightened crude oil prices were noted as a potential driver of fuel inflation, while sustained demand pressures were described as likely to keep core inflation from easing.

Measured against the same month a year earlier, India's CPI-based inflation rate climbed to 5.5 per cent in September, up from 4.8 per cent recorded in August, placing the reading at its steepest point in roughly two years. Food price inflation for consumers climbed to 7.7 per cent over the period, a reading roughly 170 basis points above the figure recorded in August.

Onion prices led the charge among food categories, with their year-on-year rate climbing from 48.8 per cent the month before to 108 per cent by September, pulling overall inflation higher. Price rises in pulses climbed to 4.7 per cent, up from 3.6 per cent, while a broad range of food categories — among them edible oils, cereals, sugar, milk and dairy products, eggs, fruits, and ready-made food — also faced upward cost movement.

Cereal and edible oil costs were among the commodity categories pushing worldwide food prices upward, according to the document. Tighter transport conditions across the Black Sea corridor pushed wheat values upward, while a harvest shortfall in the United States and dwindling export volumes out of Brazil combined to lift maize trading prices. Elevated palm oil prices fed through into broader edible oil costs.

Stripping out food and fuel costs, the underlying inflation rate climbed to 4.3 per cent across September. Clothing and footwear costs edged up to 3.9 per cent from 3.6 per cent, while the transport category posted a rise to 5 per cent, up from 4.6 per cent the previous month. Dining and lodging sectors added upward pressure to underlying inflation figures.

Three factors flagged in the Bank of Baroda report — patchy monsoon performance, below-average water storage across reservoirs, and an intensifying El Niño pattern — point toward upward pressure on food prices over the near term. Persistently elevated crude oil prices, combined with the armed hostilities under way in West Asia, were identified as sources of upward pressure on the cost of living.

For four months running, consumer price growth has held above the 4 per cent threshold set by the RBI. The document noted that sustained price pressures from second-round effects warranted ongoing attention, given that entrenched inflation could build the argument for tightening monetary policy.