India CPI Inflation for Mar-26 edges up to 3.40% amid war impact

HIGHER INFLATION – US-IRAN WAR IMAPCT

If the February 2026 inflation spike was due to the change in base year and a new composition for the basket; the March 2026 spike was largely due to the US-Iran war effect. Remember, in India, the prices of petrol and diesel are not linked to crude prices. However, the prices of premium fuel and LPG has already gone up. In fact, between February and March, the fuel inflation is up from 0.14% to 1.65%. This is without domestic petrol and diesel prices being hiked. Also, the secondary effects of impact on chemicals, pharma products and paints will be felt next month. Here is a quick break up.

Data Source: MOSPI

KEY DRIVERS OF HEADLINE INFLATION IN MAR-26

• Food inflation has gone up from 3.47% to 3.87% in last one month. However, the bigger news is that this Kharif season could see the El Nino effect play out.

• While fuel prices are still regulated, it must be noted that the fuel inflation has gone up from 0.14% to 1.65% in the last one month, clearly showing fuel pressure on CPI.

• In terms of products; Onions, Potatoes, Garlic, Arhar, and Tur Dal have contained inflation. Pressure has come from gold, silver, copra, tomatoes, and cauliflower.

• The area of concern remains gold and silver, which is part of Personal Care, but if you just look at personal effects (jewellery), the inflation is closer to 64%.

WHERE DOES CPI INFLATION GO FROM HERE?

Let us look at the impact of 4 critical baskets and the impact that it could have in the coming months on consumer inflation.

• Let us look at food inflation first. It is driving the differential in inflation, despite reduced weight. The bigger concern would be the likely impact of the El Nino this year, which is likely to impact monsoons and the Kharif output this year.

• In the last 45 days, the Middle East has gone from relative peace to war to a truce and is now standing on the threshold of renewed hostilities. With the Straits of Hormuz being the bone of contention, fuel inflation will be closely watched.

• Core inflation has been steady at around 3.7%, but this is just the beginning. The impact of core inflation is visible when supply chain constraints start to bite, and secondary price hikes by paints, chemicals, pharma etc become inevitable.

• If one looks at the break-up of rural and urban inflation; then rural inflation is higher in case of F&B, clothing, footwear, home fuels, home furnishings, Communication, and gold & silver. In all other baskets, it is the urban inflation that leads. Rural inflation at 3.63% in March 2026 is higher than urban inflation by 52 bps.

For now, the big question is how much longer will the war last? At present, there is no clarity, but even if the war ends, there will be a lingering impact on hydrocarbon supply chains. That is also a message to India about being too dependent on oil & gas imports.