Synopsis
India’s retail inflation has shown limited impact from the West Asia conflict’s energy price surge, with government measures cushioning consumers. Despite rising global crude and gas prices, domestic inflation remained subdued in March, though future risks from prolonged conflict and weather conditions are noted.
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Despite a sharp surge in global energy prices triggered by the ongoing West Asia conflict, the impact on India’s retail inflation has remained limited so far, according to a report by Crisil Intelligence.
“Despite a full month since the onset of the conflict, retail inflation showed a relatively low impact of the energy shock.” noted the report.
The report noted that although Brent crude prices rose about 45 per cent in March and international natural gas prices jumped nearly 69 per cent compared with February, the pass-through to domestic retail inflation has been muted.
India’s Consumer Price Index (CPI)-based inflation edged up to 3.4 per cent in March from 3.2 per cent in February, primarily due to a rise in food and fuel prices. However, the broader impact of the global energy shock remained contained.
The report highlighted that government measures helped cushion consumers from rising global fuel costs. Retail prices of petrol and diesel were largely kept unchanged, while excise duty cuts announced in late March further shielded households from price pressures.
Core inflation remained stable at 3.7 per cent, indicating that second-round effects of higher energy prices are yet to materialise. Lower inflation in gold and silver, due to a correction in global prices and a high base, also helped contain overall inflation.
Looking ahead, Crisil expects inflation to average 4.5 per cent in fiscal 2027, with a potential rise to 4.7 per cent if the West Asia conflict persists and energy prices remain elevated. Sustained increases in global fuel prices could eventually lead to higher retail prices for cooking and transportation fuels, along with broader second-round effects through trade and logistics costs.
The report also flagged risks from weather conditions. The India Meteorological Department has projected a below-normal southwest monsoon at 92 per cent of the long-period average for 2026, with El Nino conditions likely. This raises concerns over food inflation, especially if heatwaves and weak rainfall impact agricultural output.
On the food front, inflation trends were mixed. Cereals and pulses continued to see deflation, though at a moderating pace, while inflation in vegetables, meat, fish, and edible oils increased. Ready-made food products also recorded higher inflation, driven by rising prices of spices and related items.
Fuel inflation was further pushed up by higher LPG and piped natural gas prices, while electricity continued to remain in deflation.
In the core segment, categories such as housing, clothing, and education remained broadly stable. Transport inflation showed minimal impact from global fuel price shocks so far, although airfares rose sharply during the month.
Crisil said a prolonged geopolitical conflict and weather-related disruptions remain key upside risks to inflation going forward.