India’s retail inflation stood at 3.21% in February, according to data released on Thursday, amid trade uncertainty and geopolitical tensions in the Middle East. The Consumer Price Index (CPI)-based inflation had stood at 2.74% in January under the revised CPI series with 2024 as the base year.
The latest inflation print comes at a time when tensions involving Iran, Israel and the United States have raised concerns about disruptions to global oil supplies. Economists say prolonged supply constraints could translate into imported inflation for energy-dependent economies such as India.
Also Read: How persistently high oil prices amid Iran war could impact India’s economy
Food inflation, which carries the largest weight in the CPI basket, also quickened 3.47% in February, compared with 2.13% in January, according to data released by the Ministry of Statistics and Programme Implementation. Inflation in electricity, gas and other fuels category stood at 0.14%.
Rural inflation rose to 3.37% in February from 2.73% in January, while urban inflation increased to 3.02% from 2.75%, remaining below the Reserve Bank of India’s medium-term target of 4%.
At the all-India level, some kitchen staples continued to remain in deflation in February. Inflation in garlic stood at -31.09%, compared with -53.03% in January, while onion prices declined -28.20%, slightly narrower than the -29.30% contraction a month earlier. Potato prices also remained in negative territory at -18.46%, easing from a -28.98% decline in January.
Services and household components
Price pressures in several services and household segments also remained in focus under the revised CPI basket.Housing inflation stood at 2.12% in February, compared with 2.05% in January. Inflation in clothing and footwear was recorded at 2.81% in February, against 2.98% in January.
Inflation in restaurants and accommodation services stood at 2.73% in February, compared with 2.87% in January, while health inflation was recorded at 1.90%, compared with 2.19% in the previous month.
Inflation in information and communication services stood at 0.25% in February, compared with 0.16% in January.
Also Read: India cooking gas crunch fuels inflation fear as Iran war widens
High inflation in metals
Among items recording the highest inflation in February, silver jewellery inflation stood at 160.84%, compared with 160.12% in January, while gold, diamond and platinum jewellery prices rose 48.16%, up from 46.80% a month earlier, according to data released by the Ministry of Statistics and Programme Implementation.
The Reserve Bank of India had flagged rising precious metal prices as a factor influencing inflation during its February Monetary Policy Committee review. RBI Governor Sanjay Malhotra said the central bank’s slight upward revision in the inflation outlook was “primarily due to increase in prices of precious metals,” which contributed about 60–70 basis points to the projection, even as underlying price pressures remained subdued.
Revised CPI basket
This is the second inflation reading which comes under the revised CPI framework, that updates the base year to 2024 from 2012 and incorporates a reworked consumption basket to reflect changes in household spending patterns.
Under the new series, the combined weight of food and beverages has declined to 36.75% from 45.9% earlier, though it remains the largest component of the CPI basket. Food alone now accounts for 34.77% of the index.
The weight of housing, water, electricity, gas and other fuels has increased to 17.7%, compared with 16.9% earlier, while several services categories, including transport, information and communication, and household services, now carry higher weights.
The revised basket also includes new items such as rural housing, OTT subscriptions, value-added dairy products and digital storage devices, while removing outdated goods such as VCRs and audio cassettes.
“Under the new series, core inflation is trending at a more benign level than the old series, due to a combination of subdued run-rates in housing, health and personal care categories (double digit rise but slower than old series). Pipeline price risks are under watch with a recent increase in the LPG prices, besides official measures to prevent hoarding of supplies, while we maintain that an immediate price increase in retail fuel prices is unlikely. The within-target inflation numbers are unlikely to be an important market-mover for the policymakers, with focus instead on improving policy transmission and maintaining financial market stability, in midst of geopolitical risks,” said Radhika Rao of DBS Bank ahead of release of the latest data.
Oil supply concerns
Inflation expectations are also being shaped by developments in West Asia, where the conflict involving Iran, Israel and the United States has increased uncertainty around global oil supplies.
Shipping disruptions near the Strait of Hormuz, a key passage for global crude shipments, have raised concerns about supply bottlenecks. Nearly one-fifth of global oil trade passes through the waterway.
“We estimate that for every 10% increase in crude oil prices, the WPI inflation rises by 80-100 bps, against the 40-60 bps uptick in the CPI inflation assuming that a full transmission into Retail Selling Prices (RSPs) of fuels takes place,” Aditi Nayar, Chief Economist at ICRA, said.
What the RBI had said
The Reserve Bank of India has projected CPI inflation at 2.1% for FY26, with Q4 inflation at 3.2%, and expects it to rise to 4% in Q1 FY27 and 4.2% in Q2 FY27 as price pressures gradually normalise.
“The slight upward revision in the inflation outlook is primarily due to increase in prices of precious metals, which contribute about 60-70 basis points. The underlying inflation continues to be low,” RBI had said in its February meeting.
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