India’s retail inflation edged up to 3.2% in February, reflecting a modest rise in price pressures primarily due to higher food inflation, even though overall inflation remains well within the Reserve Bank of India’s comfort range.
According to official data, food inflation rose to about 3.5% in February from 2.1% in January, driven mainly by higher prices of vegetables, fruits and nuts, oils and fats, and ready-made food items. Despite the uptick, food prices have generally been on a normalising trend compared with the higher levels seen earlier in the fiscal year.
On a cumulative basis, retail inflation has averaged 1.9% during the current fiscal year (April-February), indicating relatively subdued price pressures so far.
Core inflation, excluding food and beverages and fuel, remained broadly stable at 3.4% in February. When precious metals and stones are excluded, core inflation was even lower at 1.9%, suggesting underlying demand pressures in the economy remain contained.
The February inflation reading comes under the new CPI series introduced earlier this year, with the base year revised to 2024 from 2012 and the consumption basket expanded to 358 items from 299 earlier. Under the revised series, the weight of food items in the index has been reduced to below 40% from about 45%, reducing the direct impact of food prices on headline inflation.
However, the CPI index itself has been rising steadily in recent months. The index increased to 104.57 in February, up from 104.46 in January, marking the fourth consecutive month of sequential gains.
Within the food basket, some items continued to record sharp price increases. Tomato inflation remained high at 45.3%, though it cooled from 64.5% in January. Other categories such as fruits, oils and prepared food items also contributed to the rise in food inflation.
Outside the food segment, several components also saw moderate price increases. Paan and tobacco inflation rose to 3.64%, while housing-related maintenance and repair costs increased to 3.26%. Education expenses also remained elevated, with secondary education inflation at 4.09% and higher education at 3.59%.
Transport costs showed mixed trends. Transport services for goods remained high at 7.49%, while passenger transport services moderated to 1.75%. Meanwhile, durable goods inflation stayed subdued, with vehicle prices contracting by 4.65%, reflecting weak demand and intense price competition.
Some niche categories saw unusually sharp increases. Inflation in other personal effects rose to 60.8%, with silver inflation at 160% and gold prices rising 48.2% in February.
Looking ahead, economists expect inflation to gradually firm up. Estimates suggest average CPI inflation could reach around 4.3% in FY2027, assuming normal weather conditions and stable food prices.
However, global developments- particularly the ongoing Middle East conflict- pose risks to the inflation outlook. Higher global crude oil prices could put upward pressure on fuel and transport costs, which together account for about 14.2% of the CPI basket.
Recent policy changes could also add to price pressures. The Rs 60 increase in domestic LPG cylinder prices is expected to push up inflation in the fuel category from March onwards. Rising global energy prices may also affect petrol, diesel, compressed natural gas (CNG) and airfare.
According to the Reserve Bank of India, a 10% increase in global crude prices could raise headline inflation by around 20 basis points.
Economists are also watching other risks that could affect food inflation. Possible heat waves this summer and the emergence of an El Niño weather pattern later in 2026 could disrupt crop production and influence food prices.
ICRA Chief Economist Aditi Nayar expects headline CPI inflation to rise to around 3.3-3.5% in March 2026, supported by higher LPG prices and rising precious metal prices.
Dipti Deshpande, Principal Economist, Crisil Ltd expects CPI inflation to rise to 4.3% on average in fiscal 2027. While food prices are expected to remain benign, assuming a normal monsoon, food inflation is likely to continue normalising from this fiscal’s lows. We expect crude prices to average $75-80 per barrel in fiscal 2027, compared with ~$70 average per barrel this fiscal.
While inflation remains relatively moderate for now, analysts say both food inflation trends and global energy prices will be key factors shaping India’s inflation trajectory in the coming months.