Inflation is the biggest problem not only in India but in the entire world. This is a matter of concern by the RBI Governor during the policy rate announcement. If we look at RBI’s inflation estimate, the country’s inflation may be 6 percent in the third quarter of the financial year. This is the time when the country is in a festive mood. The RBI believes that the common man may have to contend with inflation this festive season. The effect of which can be seen in the meeting in the month of December and increase in other rates can be seen. The biggest reason for this is crude oil prices and El Nino. It is clear that in the coming days the impact of both can be seen becoming deeper in the plate of common people. Let us also tell you what the RBI Governor said about inflation?

RBI has raised inflation estimates

The Reserve Bank of India has raised its inflation forecast for fiscal 2027 to 5.2 percent from 5 percent. The major reason for which is the increase in crude oil prices, the price of food items and the weakness of the rupee. The new assessment by the Monetary Policy Committee (MPC) comes at a time when retail inflation has moved above the RBI’s target of 4 per cent and at the same time rising tensions in West Asia pose fresh risks to fuel and imported inflation. Governor Sanjay Malhotra announced the MPC’s decision on Wednesday, with the inflation outlook being one of the most important parts of the policy review. The central bank has projected inflation at 4.9 percent for the second quarter, 6 percent for the December quarter, 5.7 percent for the fourth quarter (Q4) and 5.6 percent for the June quarter of FY 2028.

Malhotra said the RBI’s diffusion index shows scope for price pressures increasing. In August, the weighted share of items with inflation above 4% increased to around 37%. He said that the near-term projections on inflation indicate that there will be pressure on the supply side for a number of reasons. These include lack of monsoons, El Nino conditions and extreme fluctuations in international oil prices. In the August estimate, the RBI had projected CPI inflation at 5.1 per cent for fiscal 2027, compared to 4.6 per cent in the previous review. The central bank estimated inflation at 4.2 percent in the first quarter, 5.1 percent in the second, 5.9 percent in the third and 5.4 percent in the fourth quarter.

Why did RBI change its inflation outlook?

Inflation projections have changed rapidly since the RBI began cutting rates in 2025. Retail inflation rose to 4.82% in August, above the central bank’s target of 4% for the third consecutive month. Food and energy prices have emerged as key sources of pressure, while economists have also pointed to the possibility of broader inflationary pressures due to increases in input costs.

Crude oil has become the biggest new risk. Oil prices have crossed $100 per barrel amid the ongoing conflict in West Asia. For India, which imports most of its crude oil requirements, a prolonged rise in international prices could increase transportation, fuel and production costs and ultimately affect prices for consumers. The rupee has also weakened by around 6 percent this year. A weaker currency makes imported goods, including crude oil, more expensive in rupee terms and may add to inflationary pressures.

For the RBI, El Nino also seems to increase inflation. Due to which the monsoon is being affected. In India, El Nino is usually associated with low or uneven rainfall, which can affect crop production and food supply. Due to crop failure, prices of vegetables, grains and other agricultural products may increase, which may increase food inflation and subsequently CPI inflation headlines.

What do economists expect?

The October policy was expected to change the RBI’s view on inflation. 21 Economists and bank officials had expected the repo rate to be hiked by 25 basis points to 5.50 percent. While few expected RBI to keep the rate at 5.25 percent. These expectations were a far cry from the August policy, when the MPC unanimously decided to maintain the status quo and maintain its neutral stance.

Higher crude oil prices, rising retail inflation, low output from agriculture and a cut in interest rates with the US led to the demand for a rate hike. Brent crude prices rose well above the RBI’s earlier estimate of $85 per barrel for fiscal 2027, while retail inflation rose to 4.82 percent in August from 4.45 percent in July. Economists also expected inflation to move above the RBI’s upper tolerance limit of 6 percent in the December quarter. For example, IDFC First Bank expected inflation to be 6.1 percent in the December quarter, while Bandhan AMC expected it to be above 6 percent.

SBI Research took a more cautious stance and forecast CPI inflation to hover around 5.65 per cent in September and above 6.5 per cent in October and November before easing below 6 per cent in early 2027. He also expected the RBI to raise its inflation forecast for fiscal 2027 by 20 basis points in the October review.

What are central banks around the world doing?

The RBI’s move comes at a time when major central banks in developed markets have started tightening their policies in view of fresh inflation risks. The US Federal Reserve in September raised its policy rate by 25 basis points to 3.75 percent-4 percent. He said inflation was still high and the move would help it return to its 2 percent target.

The European Central Bank (ECB) also raised its three key rates by 25 basis points in September. He cited inflationary pressures due to the ongoing conflict in the Middle East. It raised its inflation forecast for 2026 to 3 percent and said inflation could remain above target until the first half of 2027 due to higher energy prices. The ECB expects inflation to return to its 2% target by the end of 2027.

Japan has also adopted a similar attitude. The Bank of Japan raised its policy rate in September to its highest level in 31 years. Governor Kazuo Ueda has since emphasized that it is important to keep underlying inflation (core inflation) around the 2% target. The BOJ is also assessing the impact of higher raw material costs, a weaker yen and geopolitical tensions, while markets are expected to tighten further in the coming months.