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Energy Costs to Push India's Inflation to 4.5% in FY27, Says ICICI Bank

ICICI Bank has revised its CPI inflation projection for FY27 upward to 4.5%, driven primarily by rising energy costs. The new CPI series has increased the weight of items like petrol and diesel, making inflation twice as sensitive to their price changes. The report notes that every $10 per barrel increase in oil prices could add 50-60 basis points to overall CPI inflation. This heightened sensitivity marks a shift from previous years, where food prices were a more dominant factor.

Key Points: India CPI Inflation to Hit 4.5% in FY27 on Energy Prices

  • CPI forecast revised to 4.5% for FY27
  • New CPI series increases weight of energy items
  • $10/bbl oil rise adds ~50-60bps to inflation
  • Food basket weight reduced to 36.8%
2 min read

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

ICICI Bank report revises CPI inflation forecast upward to 4.5% for FY27, citing heightened sensitivity to global oil prices under new index weights.

"a price hike in case of petrol now would have twice the impact than before. - ICICI Bank report"

New Delhi, March 26

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

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Reader Comments

P
Priya S
My monthly budget is already stretched thin. Petrol prices directly affect the price of vegetables, transport, everything. 4.5% might sound low to economists, but for a middle-class family, every 0.1% increase pinches. 😓 Hope the RBI keeps a close watch.
R
Rohit P
The report makes sense. The weightage change is crucial. Food inflation was the big villain before, now it's energy. Our economy is becoming more modern, but also more vulnerable to global shocks. Time to seriously invest in domestic oil exploration and strategic reserves.
S
Sarah B
Interesting analysis. The comparison to the 2022 supply shock is telling. While the direct impact numbers are clear, I wish the report elaborated more on potential policy responses to cushion this for consumers, especially for essential transport and cooking fuel.
V
Vikram M
With great respect to ICICI Bank's analysis, focusing solely on CPI might be missing the bigger picture. The indirect impact on manufacturing and WPI is what eventually hits job creation and growth. Controlling inflation shouldn't come at the cost of stalling the economy's momentum.
K
Kavya N
This is why my father keeps saying "Petrol ka rate dekh kar ghar ka kharcha tay karo" (Plan the household budget based on petrol rates). It's sadly becoming more true. Hope the government can negotiate better long-term deals with oil-producing nations. Jai Hind!

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