Retail inflation in March is estimated to have edged higher, driven largely by rising fuel prices, economists said. Consumer Price Index (CPI) inflation is pegged at a 13-month high of 3.5% year-on-year for March, according to the median estimate of an FE poll of economists. Headline retail inflation stood at 3.2% in February and 2.75% in January.
If realised, this would mark the 14th consecutive month that inflation remains below the Reserve Bank of India’s (RBI) medium-term target of 4%.
MoSPI to release inflation data in April
The Ministry of Statistics and Programme Implementation is scheduled to release the official March inflation data on April 13. Estimates in the poll of seven economists ranged between 3.3% and 4%. The March CPI print is expected to reflect the impact of the ongoing West Asia conflict, which has triggered a sharp rise in global crude oil prices in recent weeks.
Sakshi Gupta, Principal Economist at HDFC Bank, pegged March CPI inflation at 4% due to higher fuel prices and said that the “risk to this forecast is tilted towards the upside.”
“Fuel inflation is estimated to rise by 11% y-o-y compared to 0.1% y-o-y in February. Within the fuel basket, LPG prices are estimated to have registered an increase of 5.6% m-o-m in March,” Gupta said. She also estimated an increase in firewood and chips prices, as households have increased their reliance on alternative energy sources.
“On the other hand, if there is higher pressure from firewood prices, headline CPI could print closer to 4.5% in March,” Gupta added.
What did NR Bhanumurthy say?
NR Bhanumurthy, Director at Madras School of Economics, said there is upward pressure on inflation, though the extent to which the oil shock will be transmitted will take time to fully materialise. He also highlighted rupee depreciation as another factor that may have raised the cost of intermediate goods across the supply chain, potentially pushing up non-oil intermediate commodity prices.
Gaura Sen Gupta, Chief Economist at IDFC First Bank, said the rise in inflation is also due to adverse base effects, apart from increases in Liquefied Petroleum Gas, Aviation Turbine Fuel and kerosene prices.
Economists have projected food inflation in the range of 3.3% to 5.3% year-on-year in March. Although the weight of food and beverages in the CPI basket has declined to 36.75% in the 2024 series from 45.86% in the 2012 series, it remains a dominant factor. In February, food inflation stood at 3.47% year-on-year.
Core inflation, which excludes food and fuel, is projected in the range of 3.4% to 3.9% in March, compared with 3.4% in February.
Sen Gupta said food prices, as well as gold and silver prices, have declined on a month-on-month basis.
Meanwhile, Sakshi Gupta said food and beverages inflation is expected to remain broadly comfortable in March, though she anticipates a rise in sequential momentum. “This estimate is based on an increase in mandi prices for pulses and a rise in oils and fats (1.1% m-o-m in March) visible in daily data. On the other hand, this is being partially offset by continued moderation in vegetable and cereal prices during the month,” Gupta said.
HDFC Bank estimates CPI inflation to average close to 5% in FY27. This aligns with inflation averaging 4.8% in Q1 and Q2 FY27 and rising above 5% in Q3 FY27, the bank said in its report. “This forecast assumes that the Iran conflict de-escalates over the coming weeks and oil prices average at USD 80–85 per barrel in FY27.”