India’s stronger-than-expected inflation reading for June has left policymakers facing a more uncertain outlook, with renewed tensions around the Strait of Hormuz threatening to push up oil prices and a developing El Niño raising the risk of higher food costs.
Consumer prices rose 4.38% from a year earlier in June — rising above the Reserve Bank of India’s target for the first time in nearly a year and a half as higher food and fuel costs filtered through the economy. Yet, a majority of economists expect the central bank to keep rates at 5.25% in 2026, saying there’s still little evidence price pressures are broadening.
That outlook is being tested by President Donald Trump’s decision to reinstate a blockade of Iranian ships transiting the Strait of Hormuz, reviving concerns over energy supplies for the world’s third-largest oil importer.
“Oil prices have started to increase once again,” Sameer Narang and Jyoti Sharma of ICICI Bank wrote in a note. “This has added an element of uncertainty to inflation as well as growth.”
Core prices, ex-gold and silver, are inching up too, though they remain at 2.5%. Narang and Sharma estimate this measure to nudge above 4% toward the end of the year — becoming a potential trigger for the RBI to raise rates by 50 basis points “once this inflation gauge sustainably moves above 4%.”
The RBI targets inflation at 4%, with a tolerance band of 2% to 6%. Its next policy decision is due on Aug. 5.
