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Crude Oil Crash to $50 by 2026 to Slash India's Inflation Below 3.4%

SBI Research projects a significant softening of crude oil prices to around $51 per barrel by June 2026, driven by inventory build-up. This decline is expected to transmit to retail fuel prices, putting substantial downward pressure on the Consumer Price Index. Consequently, the report forecasts that average CPI inflation for fiscal year 2027 will fall decisively below 3.4%. The benign energy price environment is also predicted to boost annual GDP growth by 10-15 basis points and could lead to rupee appreciation.

Key Points: Oil Price Fall to Cut India CPI Below 3.4% in FY27: SBI

  • Crude may hit $51 by June 2026
  • CPI inflation seen below 3.4% in FY27
  • GDP growth to get 10-15 bps boost
  • Rupee could appreciate to ~87.5/$
  • Fuel prices in CPI basket to moderate further
2 min read

Softening crude prices to keep India inflation decisively below 3.4 pc in FY27: SBI

SBI Research forecasts crude at $51 by mid-2026, pushing India's CPI inflation decisively below 3.4% and boosting GDP growth by 10-15 bps.

"The expected 14 per cent correction... could average CPI inflation for FY27 decisively below 3.4 per cent - SBI Research report"

New Delhi, Jan 5

Crude oil prices are projected to soften significantly to touch around $50 per barrel by June 2026, positively affecting the CPI inflation, keeping it decisively below 3.4 per cent in the next fiscal, an SBI Research report said on Monday.

Benign energy prices will impact the GDP outlook favourably, and the expected impact on annual GDP growth is around 10-15 bps, according to the report authored by Dr Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India (SBI).

The US Energy Information Administration estimates that the Brent crude oil price will fall to an average of $55 per barrel in the first quarter of 2026, largely driven by the buildup of inventory.

Since the India basket has a correlation of 0.98 with Brent crude, the trends in Brent suggest further softening of the Indian basket.

A moving average analysis for Indian crude shows that current prices are trending "below the 50 and 200 period moving averages", suggesting future lower levels from the current level at $62.20 per bbl.

"An autoregressive quantile forecast for the Indian basket indicates that the 50th percentile forecast by March 2026 is $53.31 and $51.85 by June 2026," Dr Ghosh added.

The expected fall in Indian basket price to $53.31 per barrel due to the dynamic daily pricing mechanism will be transmitted to fuel station prices.

Based on the historical average correlation between prices observed in four metro cities, at 0.48, the fuel component of the CPI basket may see further moderation.

"The expected 14 per cent correction in India Basket in Q4 FY26 is expected to put downward pressure of 22 bps on CPI basket, assuming 48 per cent passthrough. This could average CPI inflation for FY27 decisively below 3.4 per cent," the SBI report forecast.

Analysis using recent history suggests that assuming the USD/INR base price is Rs 90.28, the 14 per cent expected correction may result in 3 per cent appreciation in the rupee, which is approximately Rs 87.5 per dollar, and a part of this could play out in Q4 FY26, the report projected.

- IANS

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Reader Comments

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Sarah B
While the forecast looks promising, these are projections for 2026. A lot can change geopolitically in two years. We've seen how volatile oil markets can be. It's good to plan, but the RBI and government should remain cautious and not base policy entirely on these long-range predictions.
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Rohit P
Lower inflation below 3.4% would be a dream come true! My monthly budget is stretched thin. If petrol prices come down, it will directly help my family. Also, rupee appreciation mentioned is a bonus. Jai Hind! 🇮🇳
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Priyanka N
The correlation analysis is interesting. Hope the government uses this period of low prices to build strategic reserves and invest more in renewable energy. We cannot remain forever dependent on global oil fluctuations. Time to accelerate our green energy mission.
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Michael C
As someone working in the logistics sector, this is very positive. Fuel is our biggest operational cost. A sustained period of lower prices would improve margins and potentially allow us to freeze shipping rates for customers. Good for business and the economy.
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Kavya N
With all due respect to SBI Research, I remember similar optimistic forecasts in the past that didn't pan out. The "passthrough" to consumers is never 100%. Taxes on fuel are still very high. Will the government reduce excise duty if prices fall, or will they just collect more revenue? That is the real question.

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