Rising prices by consumer goods companies may emerge as a key challenge for inflation in the coming quarters, even as the Reserve Bank of India (RBI) projects
a relatively comfortable inflation outlook. According to a post-monetary policy report by Elara Capital, companies are increasingly expected to pass on higher input costs to consumers, potentially preventing core inflation from easing as anticipated. The brokerage believes that while headline inflation may remain manageable, sustained price increases across consumer goods could keep underlying inflationary pressures alive. As businesses adjust pricing to protect margins, the extent of cost transmission will remain a crucial factor for policymakers. Elara Capital said it will closely track how rising production costs are reflected in consumer prices over the coming months. "We shall continue to monitor the passthrough of elevated input costs to overall inflation as companies take price hikes to pass on the impact of elevated input costs. Recent management commentary from the consumer goods firms also indicates potential upside in core inflation," Elara Capital said. The brokerage noted that recent comments from consumer goods companies suggest they are preparing for additional price increases, indicating that core inflation could remain elevated despite the RBI's current assessment. RBI Expected To Keep Interest Rates Unchanged Through 2026 Elara Capital expects the central bank to leave interest rates unchanged for the remainder of calendar year 2026. However, it believes the possibility of a 25-basis-point rate hike could emerge during the first quarter of calendar year 2027 (Q4FY27) if inflationary risks become more pronounced. The report also suggested that a temporary rise in food prices caused by El Niño may not immediately alter the RBI's policy approach. "We expect the RBI to look through the El Niño-led potential uptick in food inflation unless it becomes entrenched. Moreover, with peak conflict behind us, the upside to energy inflation looks limited," the report said. Global Central Banks Could Shape RBI's Future Policy Following its monetary policy review on Wednesday, the RBI kept the benchmark repo rate unchanged at 5.25 per cent and maintained its "neutral" policy stance. The central bank lowered its core inflation projection to 4.3 per cent from the earlier estimate of 4.7 per cent, while forecasting headline CPI inflation at 5 per cent. It also marginally increased its FY27 GDP growth estimate to 6.7 per cent, broadly matching Elara Capital's expectations. The brokerage added that developments in global monetary policy will remain an important consideration for the RBI. Decisions by major central banks, including the US Federal Reserve and the Bank of Japan, could influence India's policy trajectory by affecting interest rate differentials. With several Asian economies already tightening monetary policy, the RBI may eventually face pressure to raise rates if global conditions warrant such action. The RBI said its decision to maintain the repo rate and retain the neutral stance reflects the need for greater clarity on the inflation outlook, particularly amid uncertainties related to the southwest monsoon, El Niño, geopolitical developments and evolving global trade policies.
