Energy price pressures to drive CPI inflation to 4.5 pc in FY27: ICICI Bank report

NEW DELHI: Rising energy costs are set to push India’s retail inflation to 4.5 per cent in FY27 fiscal year, marking a shift in the domestic price landscape as the economy adapts to new weightage measures, as per an ICICI Bank report.

The bank has revised the Consumer Price Index (CPI) upward from an earlier projection of 3.9 per cent. This adjustment comes as higher prices for petrol and diesel exert more pressure on the consumer basket than in previous years, despite recent stability in other sectors.

The report noted that India sees “credible success in managing inflation in FY26 with CPI inflation at 2.1% in the year,” a figure that sits at the lower end of the official inflation band. However, changes in the structural composition of the revised series increase the economy’s sensitivity to global oil fluctuations.

Under the new series, the weight of the food basket dropped to 36.8 per cent, representing a 9.1 per cent decrease compared to the old series. At the same time, the weight of energy items such as petrol, diesel, and LPG was higher. This meant that “a price hike in case of petrol now would have twice the impact than before.”

The bank suggested that “every USD 10/bbl. increase implies around 40-45bps of direct impact and 50-60bps of overall impact on CPI inflation.” This heightened sensitivity is significant as several product segments already witnessed an increase in consumer prices.

The report drew a comparison to the supply shock of 2022, when “WPI inflation did hit a high of 9.6% in FY23 on the back of 13% increase seen in FY22 led by doubling of minerals oils index over a span of two years.” During that specific period, the resulting increase in food and manufactured products remained “far more modest at cumulative 13% and 17%.”

In the wholesale segment, the influence of crude oil was even more pronounced. For every 10-dollar change in oil prices, there is a “direct impact of ~70bps, given a weight of ~10.4% (mineral oils and crude)”. There is also an additional “indirect impact of ~40-50bps, given higher input prices for other items” within the manufacturing sector. These factors contributed to the Bank’s revised expectations for the coming fiscal year. (ANI)