Recent increases in petrol and diesel prices could directly add about 36 basis points to India's headline inflation in the coming months, the Reserve Bank of India said on Friday, warning that elevated energy prices and supply disruptions are likely to weigh on economic activity.
"The increase implies a direct impact of about 36 basis points on headline inflation, which, along with second order effects, would get reflected in CPI inflation in the coming months," RBI Governor Sanjay Malhotra said.
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Petrol and diesel prices have risen cumulatively by 7.4% and 8.4%, respectively, since May, the central bank said in its monetary policy statement. The increase, along with second-round effects, is expected to be reflected in consumer price inflation going forward.
Higher global energy prices are also feeding into the costs of commercial LPG, industrial raw materials, chemicals, rubber and plastic products, raising the risk of broader inflationary pressures, the RBI said.
"Looking ahead, elevated energy and other commodity prices coupled with continued supply disruptions are likely to affect economic activity," the central bank said.
The RBI said the global environment had deteriorated since its last policy meeting, with the prolonged conflict in West Asia disrupting supply chains and keeping energy prices elevated.
It kept its key repo rate unchanged at 5.25% on Friday and retained neutral policy stance, while projecting economic growth of 6.6% for the fiscal year 2027, a reduction from 6.9% expected earlier. Inflation outlook for the year stood at 5.1%, higher than 4.6% from the last review.
The adverse effects of extended supply disruptions and higher energy costs were reflected in the central bank's lower growth projections and higher inflation forecasts compared with its April policy review.
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Elevated energy prices and global supply constraints are already having spillover effects on economic activity, the RBI said, although domestic demand remains resilient and manufacturing and services activity continue to expand.
