Surging oil prices and monsoon fears are driving up the risk of higher inflation in India, experts warn — even as the central bank appears poised to cut rates further, adding more pressure to increasing prices.
"The best situation would be persistent low inflation rate, which is behind us. Inflation rate has already bottomed and is expected to go higher in the period ahead," said Prakash Sakpal, Asia economist at Dutch bank ING.
"Food and oil-related fuel and transport prices are coming back in play as sources of higher inflation," he told CNBC.
The Reserve Bank of India has set a long-term inflation target of 4 percent, and a medium-term target of between 2 and 6 percent. Government data showed that in February, India's consumer price index surged to a four-month high of 2.57 percent — from 2.05 percent in January.
Core inflation stayed at about 5.5 percent in February.
"With such a backdrop, I won't be surprised if core inflation re-accelerates above 6 percent in the period ahead, the level where it was just six months ago," Sakpal added.
While core inflation excludes volatile fuel and food prices, rising energy costs would continue to put pressure on the consumer inflation through higher transport costs and heavy household use of petrol and diesel in India, experts say.