India’s CPI inflation rose a tad to 3.48% YoY in Apr-26 from 3.40% in Mar-26. While the increase was anticipated, it was lower than the Reuters median consensus estimate of 3.80%. Nonetheless, CPI inflation remains below the 4.0% target for the 15th consecutive month.

Key highlights of Apr-26 data

• On a sequential basis, CPI posted an increase of 0.27% MoM, significantly lower than the series median increase of 0.54% MoM associated with April. Notably, it also marks the lowest ever increase in April since 2013. 
• Annualised Food & Beverages inflation climbed for the 4^th consecutive month to 4.0% in Apr-26 (vs 3.7% in Mar-26). 
  • The build-up in momentum was broad-based, and prominent for Fish & Other Seafood (+1.9%), Oils & Fats (+1.7%), Ready Made Food Products, (+0.7%) Fruits & Nuts, (+0.6%), Services for Processing Primary Goods for Food, (+0.4%) among others.
  • Sequential price correction was observed in Vegetables, tubers, plantains, cooking bananas & pulses (-1.0%), Other beverages (-0.3%), Cocoa drinks (-0.2%), Cereals & products and Meat (each at -0.1%). 
  • At an item-wise level, prices of Peas, Lemon, Cauliflower and Radish recorded double-digit sequential gains, partly offset by double-digit sequential declines in Watermelon, Muskmelon, Lady’s Finger and Parwal.
• Surprisingly, consolidated fuel inflation, pared down by 50 bps to 0.4% YoY in Apr-26. Sequentially, price momentum lost pace and remained flat on a cumulative basis after marking a series high of +0.79% MoM in Mar-26. 

• Core CPI inflation (represented by the CPI excluding indices of Food & Beverages, Electricity, gas and other fuels, and petrol, diesel & other fuels items within the Transport division) remained flat at 3.7% YoY in Apr-26, for the fourth consecutive month in a row. 
• Core-Core CPI inflation (excluding gold, silver, diamond, platinum jewellery & other items from Core CPI) saw a mild uptick to 2.2% YoY from 2.1% YoY over the preceding three months.

Inference and Outlook

The Apr-26 inflation print may well be a precursor to an upward bias in inflation risks, going forward. Early signs of spillovers from strained energy markets are visible across select CPI components, albeit contained for now. 

• Against the backdrop of an acute import dependence and sharply higher international prices (IMF international edible oil index +14.2% YoY), Oils & Fats added a sizable ~28 bps to the headline inflation print in Apr‑26.
• Reflecting the ~25% rise in average ATF prices, domestic airfares recorded a sharp escalation of 39.6% YoY during Apr-26 (vs. 16.7% YoY in Mar-26).
• Following the cumulative ~75% increase in commercial LPG prices since late Feb-26, Restaurant & Accommodation Services division accounted for ~15 bps of the headline CPI print in Apr-26, up from 10 bps in Mar-26.
• With domestic LPG cylinder prices kept unchanged following the hike by Rs 60 announced on 7th Mar-26, the residual impact on Apr-26 inflation remained minimal at ~3 bps.

Looking ahead, the near-term outlook for food prices remains vulnerable to the twin headwinds from war and weather-related vagaries, notwithstanding a few intermittent buffers:

• Irrigation conditions so far remain comfortable, as reflected in healthy reservoir levels, remaining ~14% above the corresponding period of last year and ~25% above the decadal average (as of 7^th May-26).
• In addition, adequate buffer stocks of rice and wheat (over 3x the normative level) with the FCI offer incremental near-term cushion to keep cereal prices in check, via open market sales.
• While an estimated backloaded impact of El-Nino (62% probability) may leave the kharif sowing somewhat unscathed, a potential shortfall in rainfall during the second half of the monsoon season could weigh adversely on kharif yields and subsequent rabi sowing later in the year. 
• Given India’s acute dependency on the Gulf for fertilizer imports, a potential supply risk ahead of the monsoon (current buffer stocks at ~45% of kharif requirements), together with a price risk (IMF fertilizer index at +45.4% YoY over Mar-May-26) could bloat India’s agri-input costs and provide an upside to the food inflation trajectory. 

Even as diplomatic signals flicker in the background and a fragile ceasefire remains in place, the US/Isreal-Iran conflict is so far showing little signs of a resolution. Continued blockade of the Strait of Hormuz remains a key overhang for energy markets keeping fears of protracted supply disruption alive. 

A few emerging upside risks that one needs to be watchful of:  

• The Indian Crude Basket (ICB) averaged ~USD 119 pb over Mar-Apr-26 (+70% YoY vs. the same period last year) and continues to average ~USD 105 pb as of 12^th May-26. The prolonged freeze in retail fuel prices, against a backdrop of cumulative ~INR 1 tn in under-recoveries since the war’s onset, suggests that some degree of pass-through to pump prices, may become unavoidable in the near term. 
• Incipient signs of strain in input costs are already visible, with manufacturing PMI input prices touching a 44-month high, and services input costs reaching an 18-month peak in Apr-26. These second-order effects could pose an upside risk to the underlying core CPI trajectory (ex-precious metals) which has so far remained benign.
• The impact of 10.6% INR depreciation over FY26, followed by a further 2.9% weakening since the ceasefire announcement on 8^th Apr-26, could exacerbate input cost pressures and likely see a pass-through as imported inflation with a lag. 

While a staggered transmission of elevated global energy and input costs has so far restrained a sharper pickup in CPI inflation, the uncertainty now centres more around the timing of transmission. 

Assuming an average Brent crude price of USD 85 pb, we continue to peg FY27 CPI inflation at 4.5%, although the balance of risks has now decisively turned to the upside. Monsoon-related uncertainties remain a key monitorable, with the updated IMD monsoon outlook due by end-May-26 expected to provide greater clarity on the evolving risk profile.

Table 1: Overview of key sub-components of inflation

Note:

1) CPI-Consolidated Fuel index includes the group Electricity, gas and other fuels under the Household, water, electricity & other fuels division, and Diesel, Petrol and natural gas (CNG) items from the Transport division.

2) CPI-Core excludes Food & Beverages and Consolidated Fuel indices from Headline CPI.

3) Readings under the memo items are derived from imputed indices. Figures have been rounded off.

Chart 1: Inflation above the lower 2% threshold band for last 4 months while below the upper 6% threshold for 18 consecutive months

Chart 2: Food & Beverages remains the key driver of Headline CPI while Core CPI inflation stays firm on Personal care & Miscellaneous category