In the third reading under the new series (base: 2024=100), India’s CPI inflation rose further to 3.40% YoY in Mar-26 from 3.21% in Feb-26. While inflation touched a 12-month high in Mar-26, it remained below the 4.0% target for the 14th consecutive month.

The acceleration was largely anticipated, with the print broadly in line with the Reuters median consensus estimate of 3.48%.

Key highlights of Mar-26 data

• On a sequential basis, CPI posted an increase of 0.26%, slightly higher than the series median increase of 0.15% MoM usually seen in March.
• Annualised Food & Beverages inflation rose for the 3^rd consecutive month to 3.71% in Mar-26 (vs 3.4% in Feb-26). Sequentially, food prices rose 0.25% MoM, marking a return to expansionary territory after three successive months of contraction.
  1. The build-up in momentum was broad-based, and prominent for Fruits & Nuts (+3.0%), Meat (+2.1%), Cocoa drinks (+1.1%), Oils & fats (+1.0%), Fish & other seafood (+0.8%) and Ready-made food & other food products (+0.5%). 
  2. Partially offsetting this, there was sequential price correction in Vegetables, tubers, plantains, cooking bananas & pulses (-2.4%), Milk (-0.2%), Soft drinks and Tea (each at -0.1%). 
• Consolidated fuel inflation, rose by a sizable 80 bps at 0.9% YoY in Mar-26, after remaining flat at 0.1% in the preceding two months. Sequentially, prices rose by 0.78% MoM, marking a series high. 
  1. The sequential upside was primarily led by price increase in LPG cylinder and piped natural gas (+3.6%), Coal (+2.6%), PDS Kerosene (-2.5%), Biogas and gobar gas (+1.3%) and Firewood & chips (+1.0%).
• 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 unchanged at 3.7% YoY for the third consecutive month in Mar-26. 
  1. Likewise, Core-Core CPI inflation (excluding gold, silver, diamond, platinum jewellery & other items from Core CPI) also held steady at 2.1% for the third straight month.

Inference and Outlook

Mar-26 CPI inflation highlights the following developments:

• Food and beverages inflation continued to remain the dominant driver of headline CPI, accounting for about 136 bps to the Mar-25 CPI print. 
  1. This was largely driven by sustained firmness over the past three months in animal protein groups including meat, dairy and poultry (together adding 52 bps) alongside Fruits & Nuts (30 bps) and Oils and Fats (24 bps).
  2. At an item-wise level within Vegetables, sequential gains in peas, radish, palak and carrot were more than offset by price declines in tomato, lady’s finger, parwal, onion, and potato, among others.
• While elevated precious metals prices (IMF precious metals index up by 67.2% YoY in Mar-26), continue to keep core CPI firm, underlying price pressures remain subdued - as captured by the benign core-core readings.

Looking ahead, the near-term outlook for food prices remains exposed to the evolving weather-related risks:

• While rabi sowing had concluded ~6% above normal (as of 30^th Jan-26), the harvest season has so far started on a challenging footing. Bouts of unseasonal rainfall and hailstorms during early Apr-26 have reportedly damaged standing yields across ~2.49 lakh hectares, with wheat particularly affected. 
• Having said, reservoir levels (as of 8^th Apr-26) remain ~18% above the corresponding period of last year and ~27% above the decadal average, suggesting comfortable irrigation conditions heading into the upcoming crop cycle. In addition, adequate buffer stocks of rice and wheat (over 3x the normative level) with the FCI offer additional near-term cushion. 
• The potential emergence of El Nino conditions (62% probability), with its impact likely to be backloaded, raises risks to the south-west monsoon outlook. In line, the IMD in its first projection of the south-west monsoon season for CY26 has estimated a below-normal rainfall (92% of LPA) between Jun-Sep-26. Further, the likelihood of intense heatwaves over the upcoming summer months could exacerbate these concerns. 

The month-long blockade of the Strait of Hormuz owing to the US/Irael-Iran conflict exposed India’s acute vulnerability for about 50%, 60% and 70% of its crude oil, LPG and LNG supplies that transit via this critical arterial chokepoint. 

• Resultant supply disruptions drove a ~6.9% hike in domestic LPG cylinder prices on 7^th Mar-26, which added 10 bps to the headline CPI print for Mar-26. 
• Notwithstanding the ~5.1% increase in commercial LPG cylinder prices in Mar-26, the incremental pass-through to prepared food categories so far remained contained, with cooked meals and snacks adding 10 bps to headline CPI in Mar-26 (vs 9 bps in Feb-26). 
• In parallel, a pickup in demand for traditional fuels such as firewood and coal exerted upward pressure on their prices in Mar-26.
• Reflecting the 5.7% rise in average ATF prices in Mar-26, retail airfares recorded a sharp increase of 14.2% YoY during the month (vs. -7.0% YoY in Feb-26).

However, following the collapse of negotiations after a fragile and short-lived truce, the six-week Middle East conflict has re-entered an escalatory phase. Consequently, the US’ announcement of a naval blockade of the Strait of Hormuz over alleged Iranian profiteering from the arterial chokepoint has reignited volatility across global energy markets.

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

• Following a knee-jerk correction of ~13.3% on 8^th Apr-26, which briefly pushed prices to around USD 95 pb for three consecutive days, Brent front-month futures have since rebounded by +4.9%, nearing USD 100 pb levels as of 13^th Apr-26. 
• While the government (via excise duty cuts) and OMCs (via margin compressions) continue to buffer pump prices for now, a pass-through to retail petrol and diesel prices, albeit partial, could possibly be announced following the completion of the ongoing state elections.
• Note, a 10% increase in the price of crude oil could impart a 40-bps upside to CPI inflation assuming complete passthrough.

• Meanwhile, broader input cost pressures have intensified with the IMF Primary Commodities Index rising sharply by 30.5% in Mar-26 driven by broad-based gains across key commodity segments:
• International fertilizer prices as reflected by IMF fertilisers index rose by 36.7% YoY in Mar-26 to a 42-month high. If sustained, this augurs unfavourably for the food inflation outlook. However, recent Government measure of a Rs 415.3 bn nutrient-based subsidy for P&K fertilizers in the upcoming kharif season (up 12% vs. last year), should partly cushion the pass-through to farm input costs. 
• Additionally, second-order effects of increase in prices of energy transition metals (+33.7%) and industrial metals (+15.9%) in Mar-26, exacerbated by currency depreciation could pose an upside risk to the underlying core CPI trajectory (ex-precious metals). 

The continued uncertainty around the Middle east crisis has promoted the RBI to recalibrate its baseline assumption of crude oil higher, to USD 85 pb for FY27 (from USD 70 pb in H2FY26) and accordingly flag upside risks to its FY27 inflation forecast of 4.6%. 

Going forward, the inflation outlook for FY27 will hinge on two key uncertainties - war and weather conditions. Early signs of spillovers from strained energy markets are visible across select CPI components, albeit modest for now, as domestic buffers and timely policy responses help cushion the macro fallout. At the same time, indications of below-normal rainfall in the upcoming southwest monsoon season remain unsettling. Ultimately, the inflation trajectory will hinge on the degree of pass-through of higher input costs to consumers, likely to be reflected in subsequent inflation prints.

Assuming an average Brent price of USD 85 pb and a relatively less disruptive monsoon season, we project FY27 CPI inflation at 4.5%, though emerging risks remain on watch. 

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 3 months while below the upper 6% threshold for 17 consecutive months

Chart 2: ~39% of the CPI items lie within the 2-6% inflation band, while 48.3% items record inflation below the lower tolerance band in Mar-26

Chart 3: ~47.6% of the CPI basket by weight lies within the 2-6% inflation band, while ~40.7% basket records sub-2% inflation in Mar-26