Petrol and diesel prices are unlikely to witness an immediate reduction despite India’s retail inflation rising above the Reserve Bank of India’s (RBI) 4 per cent target for the first time in 17 months, according to a report by Bank of America (BofA).
The brokerage said state-run oil marketing companies (OMCs) are expected to continue recovering losses incurred over the past three months before considering any rollback in fuel prices.
Inflation climbs above RBI target
India’s consumer price inflation (CPI) rose to 4.38 per cent in June, up from 3.9 per cent in May, exceeding both market expectations of 4.3 per cent and the RBI’s medium-term inflation target of 4 per cent.
It marks the first time since January 2025 that headline inflation has crossed the central bank’s target level.
According to BofA, the increase was largely driven by rising food and fuel prices.
Food and fuel remain key drivers
Food inflation accelerated to 5.1 per cent in June from 4.5 per cent in May, mainly due to higher prices of vegetables, meat, fish, edible oils and spices.
Fuel inflation also turned positive, rising by 1 per cent month-on-month, reflecting the gradual pass-through of higher retail fuel prices.
Meanwhile, core inflation—which excludes food and fuel—edged up to 3.9 per cent, indicating that underlying price pressures remain persistent.
Fuel prices may stay elevated
BofA expects headline inflation to remain above the RBI’s target over the coming months and has projected FY27 inflation at 4.8 per cent.
The brokerage also pointed to the delayed start of the southwest monsoon as a major domestic risk. Although rainfall improved in July, cumulative precipitation remains below normal, raising concerns about food production and vegetable prices in the coming weeks.
According to the report, weather conditions during July and August will play a crucial role in determining food inflation, while oil marketing companies are likely to maintain current fuel prices until they recover recent financial losses