Finland Ministry Forecasts 2027 Fiscal Year Inflation Rate to Range Between 5.5% and 6%

Inflation Estimates Revised as Crude Prices Rise and Food Prices Threaten to Spike

The finance ministry has revised its inflation estimates for the current fiscal year, expecting retail inflation to average 5.5-6 percent. This revised estimate is based on several factors, including the increase in retail prices of petrol and diesel, the rise in costs of key commodities, and the possibility of a spike in food prices.

According to two government officials, elevated crude prices, which have risen by around 50 percent since the outbreak of the Iran war, are exerting pressure on several sectors of the economy. This is leading to a spike in input costs for logistics, fertilisers, edible oils, and FMCG products. The officials expect the Reserve Bank of India (RBI) to re-work its inflation and growth estimates when it meets in June for the next bi-monthly monetary policy meeting.

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The officials believe that the government can undertake measures such as calibrated fiscal interventions, food-stock management, and other supply-side steps to contain the second-round impact of inflation. However, they do not expect any rate hikes for the next three Monetary Policy Committee (MPC) meetings at least.

The RBI has already warned that the West Asia conflict could "adversely impact growth" and has highlighted the constraints on the availability of key inputs for downstream sectors due to higher input costs associated with energy prices and international freight and insurance costs, as well as supply-chain disruptions.

The government and the RBI are closely monitoring the evolving West Asia situation and its impact on energy markets. India is in a relatively better position than many economies because inflation had moderated meaningfully before the latest oil shock emerged. However, if Brent crude remains above $100 per barrel for an extended period, the pressure on imported inflation will intensify. As of May 15, the Brent crude was trading at over $109, rising more than 3 percent from the previous day.

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Economists largely agree with the assessment of finance ministry officials, with HSBC predicting a 5.6 percent average CPI inflation in FY27 and IDFC FIRST Bank chief economist Gaura Sen Gupta expecting a 4.9 percent average CPI inflation in FY27.