Commerzbank’s economists, led by Dr. Henry Hao, note that India’s April Consumer Price Index (CPI) rose 3.5% year-on-year, marking a fifteenth month below the Reserve Bank of India's (RBI) 4% mid-point target. Government measures have so far cushioned Oil-related pressures, but the bank expects inflation to edge higher as fiscal space narrows, relief measures are normalised, and adverse weather lifts Food prices.

Relief measures face fiscal limits

"April CPI rose less than expected by 3.5% yoy (Bloomberg consensus: 3.8%) vs 3.4% in March. It marked the fifteenth consecutive month that inflation remained below the Reserve Bank of India’s (RBI) 4% mid-point target. In the first four months of the year, inflation averaged 3.2%, below the RBI’s 4.6% forecast for fiscal year 2026-2027 (FY2026-2027). Government policies helped to contain broader inflationary pressures from higher global oil prices."

"Looking ahead, inflation is expected to rise in the coming months as the government faces limited fiscal space to sustain the current relief measures. Following strong state election results, Prime Minister Narendra Modi openly urged citizens to reduce electricity usage and rely more on public transport, suggesting that some relief measures could soon be normalised to ease pressure on public finances. Food prices are also likely to rise as unfavourable weather conditions weigh on agricultural production."

"Food inflation rose 4.0% yoy in April vs 3.7% in March, as spring harvest crop yields were partly damaged by heavier-than-expected rainfall. Food prices are expected to remain elevated amid a hotter and drier summer, while supply chain disruptions continue to raise fertiliser costs."

"Liquefied petroleum gas (LPG), which is used for cooking, rose 3.0% vs 5.3% in March. Although caps on consumer LPG prices were unchanged, commercial LPG prices increased as crack spreads widened. Transport fuel inflation remained benign at 0.1% yoy in April, unchanged from March."

"Core CPI, which excludes food and fuel prices, rose 3.7% yoy, unchanged from March. Higher precious metal prices partly drove the reading, and, excluding jewellery, it rose 2.2% vs 2.1% previously."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)