India’s inflation rate increased in February even before the full impact of the Iran war was visible on the world’s fourth largest economy. However, it is still below the RBI’s inflation target.
The consumer price index (CPI), a measure of retail inflation, rose to 3.21% last month against a revised 2.74% in January, according to government data on Thursday. This compares with the Reserve Bank of India’s estimates of 2.1% in FY26, 4% in Q1 FY27 and 4.2% in Q2 FY27. RBI’s inflation target has been set at 4% with a tolerance band of 2% to 6%.
Food inflation stood at 3.47% in February, compared to 2.13% a month earlier.
The ongoing Iran war—which has pushed crude oil prices to a four-year high—is sure to weigh on New Delhi’s inflation calculus as India is the world’s third-largest oil importer. Earlier this week, Finance Minister Nirmala Sitharaman had said the government did not expect a sharp rise in inflation, but a government report released last week said a prolonged Iran war could weaken the rupee and widen India’s current account deficit.
According to CLSA, every 10% rise in crude oil prices increases retail inflation by 40 to 60 basis points. One basis point is one hundredth of one percentage point.
Oil prices rose above $119 a barrel earlier this week, the highest intraday prices since June 2022, but hopes for an easing of the war and the International Energy Agency’s decision to release a record 400 million barrels of oil from its strategic reserve have weighed on commodity prices.