CPI inflation rose broadly in line with expectations to 3.21% in Feb-26 from 2.75% in Jan-26
Download ReportQuantEco Research || India Feb-26 CPI inflation - Oil risks re-enter inflation equation
CPI inflation rose broadly in line with expectations to 3.21% in Feb-26 from 2.75% in Jan-26, with the upside being driven primarily by two factors – one, waning of food price disinflation, and two, higher taxes on tobacco and tobacco products now under excise duty (transitioned from GST compensation cess), being passed on to consumers. All attention and rightly so, has shifted to inflation trajectory beyond Feb-26, keeping in mind the outbreak of conflict in Middle East, and its impact on crude and natural gas prices. The near and immediate impact of this has already been seen, with the price escalation of Rs 60 being announced for domestic LPG gas cylinders. As per our estimates, this translates in 14-15 bps of direct impact on Mar-26 CPI estimate. There could be an added marginal impact of indirect costs too, with dining-out and processed food turning more expensive.
Looking ahead, the impact of the energy-led price shock on CPI inflation will largely depend on – 1) Longevity of the crisis and 2) Severity of disruption to global energy supplies. If the Middle East war continues over the next 1-2 months, its fallout while being severe in the very near term, could possibly be managed via internal buffers and policy decisions (excise duty cuts). But, under a worst-case scenario – characterized by a prolonged Middle East conflict, severe disruption to energy supplies and crude stabilizing at USD 100 pb - we estimate CPI inflation could rise by ~100 bps above our pre-war baseline estimate of ~4.0%.