India may hike fuel prices in November, pushing inflation above RBI target: Oxford Economist
India may increase retail fuel prices moderately in November, creating a limited window for the move before campaigning intensifies for state elections early next year, Oxford Economics said.
“We regard November as the last realistic window” for price increases at the pump, “before campaigning for early-2027 state elections intensifies,” Alexandra Hermann Prasad, lead economist at Oxford Economics, wrote in a note on Thursday.
Five of the seven states scheduled to hold elections next year, including Uttar Pradesh and Punjab, will vote between March and May.
The potential fuel-price increase could be around half the magnitude of the cumulative 7.5% increase implemented in May, the only period when retail pump prices rose in response to the war in the Middle East, Hermann Prasad said.
Such a move could push India's retail inflation to 6.2% in the October-December quarter and 6.5% in the first three months of 2027, taking it above the Reserve Bank of India's (RBI) target range of 2-6%.
Oxford Economics' inflation projections are higher than the RBI's latest estimates and point to a different trajectory for price pressures.
In its monetary policy review earlier this month, the RBI projected inflation at 6% in the October-December quarter, easing to 5.7% in January-March.
Oxford Economics, however, expects inflationary pressures to intensify in the coming months, partly reflecting the possibility of higher retail fuel prices.
For the full financial year ending March 2027, Hermann Prasad forecast inflation at 5.4%, compared with the RBI's projection of 5.2%.
However, if the authorities do not announce a fuel-price increase in November, Oxford Economics' inflation projections could fall by 10-30 basis points in the coming quarters, she said.
Even without a fuel-price increase, inflation is expected to remain elevated, according to Hermann Prasad.
“inflation would remain elevated,” she said, adding that the RBI may need to raise interest rates by 25 basis points each at its December and February policy meetings, following the quarter-point increase in October.
India's retail inflation rose to 5.54% in September, its highest level since late 2024, from 4.83% in August.
A further increase in fuel prices could add to inflationary pressures and complicate the central bank's efforts to keep price growth within its target range.
Hermann Prasad also assessed the outlook for the Indian rupee, noting that the RBI's recent measures in the currency market should help contain volatility.
However, she cautioned that the measures might not be sufficient to deliver lasting stability in the face of expensive oil imports and persistent external financing pressures.
The RBI’s recent currency-market measures should contain rupee volatility, “but elevated oil prices and persistent external financing pressures mean intervention alone is unlikely to deliver lasting currency stability,” she said.
The economist also said that expanding protests against the government over allegations of electoral malpractice were unlikely to have a material impact on India's economic growth.
She said the disruption had largely remained concentrated in Delhi and was not extensive enough to significantly affect the broader economy.
As she put it, “disruption has largely centered on Delhi and remains too limited.”
(With Bloomberg inputs)
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