Petrol and diesel prices are unlikely to see an immediate cut even as India's retail inflation has climbed above the Reserve Bank of India's 4% target for the first time in 17 months, according to Bank of America.
In a note following June's inflation data, the brokerage said it does not expect oil marketing companies (OMCs) to reverse recent fuel price hikes anytime soon as they continue to recover losses incurred over the past three months.
India's consumer price inflation accelerated to 4.38% in June from 3.9% in May, exceeding both market expectations of 4.3% and the RBI's medium-term inflation target. It also marked the first time since January 2025 that headline inflation has crossed the central bank's 4% threshold.
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According to BofA, the rise in inflation was largely driven by food and fuel prices. Food inflation increased to 5.1% from 4.5% in May, supported by higher prices of vegetables, meat, fish, oils and spices. Fuel inflation also turned positive, rising 1% sequentially, reflecting the gradual pass-through of higher retail fuel prices. Core inflation, which excludes food and fuel, edged up to 3.9%, indicating underlying price pressures remain sticky.
The brokerage believes fuel inflation could remain elevated as state-run oil marketing companies continue to pass on higher costs to consumers instead of rolling back recent price increases.
Looking Ahead
BofA expects headline inflation to remain above the RBI's 4% target over the coming months. The brokerage forecasts FY27 consumer inflation at 4.8%, with risks evenly balanced.
A key reason for its cautious outlook is the weak start to the southwest monsoon. While rainfall has improved in July after an unusually slow beginning, cumulative precipitation remains below normal. BofA said inflation risks are becoming increasingly domestic rather than global, with weather conditions likely to have a greater influence on food prices during the remainder of the monsoon season.
Although agricultural conditions have improved in recent weeks, the brokerage cautioned that July and August will be crucial. Vegetable prices remain particularly vulnerable to weather-related disruptions, even as broader macroeconomic conditions continue to appear resilient.
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