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Informist, Thursday, Mar. 12, 2026

 

By Shubham Rana

 

NEW DELHI – Retail inflation in India remained benign in February and broadly in line with economists' expectations. But the ongoing war in West Asia risks raising consumer goods prices, bringing to an end the period of record low inflation, economists said.

 

Data released Thursday showed CPI inflation rose to 3.21% in February from 2.74% the month earlier, driven by higher food inflation. Food inflation rose to 3.47% last month from 2.13% in January. Core inflation--excluding food and fuel items, whose prices can be volatile--remained steady at 3.4% last month.

 

Excluding gold and silver jewellery, core inflation was even lower, at around 2%. Rise in tobacco inflation, on the back of an excise duty hike on cigarettes from Feb. 1, also pushed the headline print higher last month. Paan and tobacco inflation rose to 3.64% in February from 1.95% in January.

 

While inflation was expected to rise in 2026 from last year's lows, the extent of the increase could be greater than previously expected, economists said. The US-Israel attack on Iran and the subsequent retaliation has already impacted consumers in India, with oil companies raising cooking gas prices and restaurants across the country reportedly halting operations.

 

Last week, oil companies raised prices of domestic and commercial liquefied petroleum gas cylinders by INR 60 and INR 114.50 per cylinder, respectively. "The first line of impact on CPI for March comes from the increase in LPG prices that we have already seen," said Yuvika Singhal, an economist at QuantEco Research. Singhal estimates that the LPG price hike would add around 10 basis points to the March inflation print and another 4-5 bps to the April print.

 

To ensure adequate availability of LPG in the country, production has already risen by 25%, according to the government. Following the closure of the Strait of Hormuz, India has also secured more oil from diversified sources outside the Gulf region.

 

"If the duration of the war is anywhere between one month to two months or maybe shorter, then possibly we might not see an impact coming on consumer prices because the oil marketing companies will absorb some part of the increase," Singhal said. "But, in case crude prices remain above $80 a barrel, I think then the price pass-through to consumers becomes inevitable. But that's a story that could probably play out over six to eight weeks into the situation, and if things don't de-escalate."

 

State Bank of India estimates that imported inflation was 5.7% in February, 245 bps higher than headline inflation, due to "exchange rate fluctuations and external shocks like supply chain disruptions". This is expected to "increase considerably further", SBI said in a report.

 

Economists have begun raising their inflation forecasts due to the ongoing war in West Asia. Nomura Wednesday raised its forecast for India's inflation for 2026-27 (Apr-Mar) to 4.5% from 3.8%. Most economists expect inflation to be around 4.0% to 4.5% in FY27, assuming crude oil prices below $80 a barrel.

 

According to CareEdge Ratings, if average crude oil prices remain at $100 per barrel or higher, taking both direct and indirect impacts into account, inflation could rise above 5%. Government officials, however, have indicated that petrol and diesel prices are unlikely to rise even if crude oil prices are $100-$128 per barrel.

 

Economists also expect the government to intervene by cutting excise duties on petrol and diesel if higher crude oil prices force oil companies to raise pump prices.

 

"While the pump prices of petrol and diesel have not changed yet, the upside risks remain, contingent upon the scale of the oil price shock, the absorption capacity of the oil marketing companies (OMCs) and any potential intervention by the government to lower excise duty/VAT," economists at ANZ Banking Group said in a report. "Any fiscal intervention is probable if crude prices are expected to remain elevated for longer due to persistently disrupted supply or a further deepening of the Middle East (West Asian) conflict."

 

Apart from external pressures, inflation could also rise in the coming year on the back of higher food inflation, with the India Meteorological Department predicting above normal maximum temperatures from March to May. There is also a risk of El Nino, a phenomenon characterised by warmer-than-average sea surface temperatures in the central and eastern Pacific Ocean near the equator, which is typically associated with reduced monsoon rainfall in India.

 

There is about a 60% chance of El Nino-Southern Oscillation neutral conditions developing in the March to May period, the World Meteorological Organization said. The probability of an El Nino event remains low during the forecast period, but it will gradually increase to 40% by the end of July, the organisation said.

 

"A rise in food inflation because of higher temperatures is not an immediate worry because the rabi season went off fairly well," Singhal said. "But the tilting point will come somewhere around June or July, when we would have an actual understanding of how the monsoon will be, amidst expectations of the El Nio phenomenon developing."  End

 

US$1 = INR 92.19

 

Edited by Ashish Shirke

 

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