India’s inflation rate rose in February even before the full impact of the Iran war shows on the world’s fourth largest economy. However, it’s still below the RBI’s inflation target.
The Consumer Price Index (CPI), a measure of retail inflation, rose to 3.21% last month as against a revised 2.74% in January, according to government data on Thursday. That compares with the Reserve Bank of India’s estimate of 2.1% in FY26, 4% in Q1 FY27 and 4.2% in Q2 FY27. The RBI’s inflation target is set at 4% with a tolerance band of 2% to 6%.
Food inflation was at 3.47% in February as compared with 2.13% a month ago.
The ongoing Iran war—which has pushed crude oil prices to four-year highs—is certain to weigh on New Delhi’s inflation math as India is the world’s third-largest oil importer. Earlier this week, Finance Minister Nirmala Sitharaman said that the government does not expect a sharp rise in inflation, but a government report released last week said that a prolonged Iran war could weaken the rupee and widen India’s current account deficit.
According to CLSA, every 10% increase in crude oil prices raises retail inflation by 40 to 60 basis points. One basis point is one-hundredth of a percentage point.
Oil prices soared over $119/barrel earlier this week, the highest intraday prices since June 2022, but hopes of the war de-escalating and the International Energy Agency’s decision to release a record 400 million barrels of oil from strategic stockpiles has brought down prices of the commodity.
