There is an 80% chance of an El Nino event from June to August, with probabilities exceeding 90% until at least November, as per a recent report. Despite this, the country’s reservoir levels are above normal, and vegetable arrivals are satisfactory. The Bank of Baroda Research note highlighted the uncertainty regarding supply conditions and their impact on inflation.
Economist Dipanwita Mazumdar forecasts that CPI inflation will range from 5.2% to 5.5% in FY27, factoring in El Nino effects and an average crude oil price of $90–100 per barrel. In May 2026, headline CPI inflation stood at 3.9%, slightly lower than the BoB Research estimate of 4.1% but higher than April’s 3.5%.
The uptick in inflation was primarily driven by increased food and fuel prices, with food inflation reaching 4.8%. Transport inflation surged due to recent petrol and diesel price hikes, while restaurant and accommodation services also saw price increases. Core inflation, excluding food and fuel, rose to 3.9%, indicating underlying price pressures.
Looking forward, BoB Research anticipates inflation risks stemming from higher fuel expenses and weather-related uncertainties, especially the potential impact of El Nino on food prices. The report emphasized the need for close monitoring of second-round pass-through effects, particularly with elevated weather risks this year.
The report further suggests that core inflation risks may escalate as companies pass on higher input costs to consumers amid stable demand. Additionally, the risks of food inflation intensifying in the near future are also highlighted.
