A Bank of Baroda research note projects retail inflation across India at a mean of 5 to 5.2 per cent through FY27, flagging climbing food costs, weather-driven supply disruptions, and the unresolved conflict in West Asia as factors that lean toward higher price pressures and that could open a path for the Reserve Bank of India to adjust its benchmark rate in the months ahead.

Consumer price growth, measured against the same month a year earlier, accelerated to 5.5 per cent in September from 4.8 per cent the previous month, putting the CPI-based rate at its steepest point in roughly two years. Food prices paid by consumers climbed at an annual rate of 7.7 per cent that month, a reading roughly 170 basis points above the figure recorded in August.

Onion prices led the food-driven pressure on the overall index, with their year-on-year rate climbing to 108 per cent by September after registering 48.8 per cent the month before. Price rises in pulses climbed to 4.7 per cent from an earlier 3.6 per cent, with upward cost movements also recorded across edible oils, cereals, sugar, milk, dairy products, eggs, fruits, and ready-made food.

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 shortfall in anticipated American harvests and thinner 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 move from 4.6 per cent to 5 per cent over the same period. Dining-out and lodging sectors added upward pressure to the underlying inflation measure.

Businesses facing steeper production expenses are likely to transfer those added costs down the supply chain, a dynamic the report flagged as a potential driver of further price increases for end buyers. Heightened crude oil prices carry the potential to push fuel costs upward, the assessment noted, while persistent demand activity at the base level may keep core inflation from easing.

Three factors flagged in the Bank of Baroda report — below-average monsoon precipitation, depleted reservoir storage, and an intensifying El Niño pattern — point toward potential upward pressure on food prices over the near term. Elevated crude oil costs, alongside an ongoing armed conflict in the Middle East, could place upward pressure on inflation, analysts have noted.

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