“Going ahead, the rise in prices of energy and other inputs, coupled with supply disruptions, is likely to weigh on economic activity,” RBI Governor Sanjay Malhotra said in his monetary policy statement.
“While import diversification in affected commodities is likely to improve supply, it would come at a higher cost. The full impact, however, will depend on the duration of the conflict, time taken for normalisation of supply chains and the burden-sharing approach among the stakeholders,” he said.
The pass-through of higher energy prices to retail products is already evident. Additionally, the projected deficiency in the south-west monsoon will have implications for agricultural production and rural demand. However, the programmes and initiatives for crop diversification, water harvesting and conservation, climate resilient practices and short-duration crops, among others, are expected to mitigate the impact, Malhotra noted.
“Turning to the inflation outlook, the partial pass-through of high global crude oil prices to domestic pump prices of petrol and diesel started since May. Prices of several inputs such as commercial LPG, industrial raw materials, chemicals, base metals, rubber, and plastic products, among others, have increased. These could exert upward pressure on CPI inflation in the coming months as firms pass on higher input costs,” he said.
The RBI has revised its CPI inflation for 2026-27 upwards to 5.1 per cent from earlier forecast of 4.6 per cent.
“These forecasts are subject to upside risks due to global supply chain disruptions, global commodity price shocks, uncertainty about the spatial and temporal distribution of the south-west monsoon and El Niño conditions. Adequate stock of foodgrains and satisfactory reservoir levels, however, provide some comfort,” Malhotra said.