India's consumer price index (CPI) inflation rose marginally to 3.48% in April from 3.40% in March, and is projected to average 5.1% in fiscal year 2027 (FY27), according to a report by Crisil Ratings released on Wednesday, 13 May. The rating agency flagged mounting risks from energy costs, a potentially weak monsoon, and input price pass-through as key threats to the current benign inflation environment.

Current Inflation Landscape

Despite the mild uptick in April, Crisil Ratings noted that upside risks to retail inflation are materialising slowly. "While the conflict in West Asia has crossed 74 days, the upside risks to retail inflation seem to be materialising at a snail's pace, indicating that the consumer remains largely protected so far," the report stated.

Core inflation — which strips out volatile food and fuel components — held steady at 3.7% for the fourth consecutive month, as the anticipated pass-through of higher energy and input costs to end consumers has not yet played out. Meanwhile, electricity, gas, and fuel inflation eased in April due to base effects, and transport fuel inflation has been kept in check by the government's decision to hold petrol and diesel pump prices unchanged.

Energy Shock and Oil Price Outlook

The energy picture, however, is far from settled. Supply chain disruptions have pushed oil price forecasts higher, with Brent crude now expected to average $90–95 per barrel in FY27 — roughly 32% higher year-on-year, according to the Crisil report. The agency warned that producers are expected to pass on the sharp rise in energy, input, trade, and transportation costs to consumers, which would likely push core inflation higher in the coming months.

Notably, the government's decision to freeze retail fuel prices has provided a temporary buffer, but the report cautioned that pump prices could come under pressure in the months ahead if global crude remains elevated.

Food Inflation and Monsoon Risk

Food inflation, which had been normalising from elevated levels, faces fresh headwinds. Crisil Ratings flagged that a below-normal monsoon amid likely El Niño conditions, combined with ongoing heatwaves, could hurt agricultural production and reignite food price pressures. Inflation in restaurants and accommodation services as well as household furnishings and equipment increased as expected, though a slower rise in precious metal inflation provided some cushion.

RBI Monetary Policy Outlook

Against this backdrop, the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) is expected to keep both interest rates and its policy stance unchanged at its forthcoming meeting, the report said. The current relatively contained inflation reading gives the central bank room to hold, but the projected rise toward 5.1% over the full fiscal year suggests the MPC will need to remain watchful. With FY27 inflation risks skewed to the upside, the trajectory of global crude, monsoon performance, and domestic fuel pricing decisions will be closely watched in the months ahead.