New Delhi, June 15 (IANS) India’s headline inflation is likely to average 5.6 per cent in fiscal 2027 and a bigger rate hike than 50 bps is not to be expected, a report said on Monday.

As energy and El Niño shocks push food and fuel prices higher, the Reserve Bank of India may only undertake a shallow rate hiking cycle with two rate hikes over Q3CY26 and Q4CY26, taking the repo rate to 5.75 per cent, the report from HSBC Global Investment Research said.

"We are not forecasting a bigger rate hike than 50 bps for now because we believe the RBI will look through part of the inflation increase as temporary," the report said.

The research firm had earlier given a forecast of CPI inflation to asymptote towards 4 per cent by March 2028.

The repo rate forecast assumes oil prices to average $95 per barrel in FY27 with a deal leading to a gradual reopening of the Strait of Hormuz around mid-June.

May consumer price index inflation rose to 3.9 per cent year‑on‑year, up from 3.5 per cent in April, with sequential momentum accelerating to 0.5 per cent month‑on‑month.

Non-food goods inflation (at 5.1 per cent YoY) is running much higher than services inflation (at 2.1 per cent YoY).

Food inflation picked up pace, with sequential momentum accelerating to 0.6 per cent MoM in May from 0.3 per cent in April. Instances of heatwaves in several parts of India pushed the price of vegetables higher, particularly that of tomato, chillies, cabbage. Prices of fruits, edible oil and spices, too, saw a notable rise in sequential terms.

The report flagged that average temperature is rising with global warming, crossing thresholds, and mattering more for food inflation than even rains particularly in El Niño years.

—IANS

aar/pk