Headline inflation in India’s retail sector, measured by the Consumer Price Index (CPI), rose slightly to 3.48% in April, from 3.40% in March, according to data released by the National Bureau of Statistics on Tuesday. The reading was weaker than the 3.8% forecast earlier in a Bloomberg survey of economists and remained below the Reserve Bank of India’s target of 4%.
The April reading is certainly the fourth straight rise in retail inflation and the highest recorded within the new CPI series with 2024 as the base year, which was released earlier this year.
These relatively benign headlines come at a time when oil prices have once again become a major macroeconomic concern in India. Brent crude rose above $107 a barrel on Tuesday after hopes for a peace agreement between the United States and Iran faded, reflecting some of the recovery seen last week when prices fell to their lowest level in two weeks on expectations of a possible ceasefire.
“While headline CPI inflation looks benign at the moment, price pressures will be more pronounced once (1) the pace of transmission from producers to consumers increases, and (2) petrol and diesel prices adjust upward,” Pranjul Bhandari, chief India economist at HSBC, said in a note.
The April CPI reading still reflects only a limited passage of the global energy shock. Inflation in the transportation sector was almost flat at -0.01%, while the housing, water, electricity, gas and other fuels division recorded inflation of 1.71%. This suggests that capped prices and limited pass-through by oil marketing companies have so far prevented the oil shock from fully manifesting itself in headline inflation in the retail sector, although there have been price increases for selected fuels such as premium petrol, LPG and diesel for industrial use.
The rise in inflation in April was mainly due to food prices. Inflation based on the Consumer Food Price Index rose to 4.20% in April from 3.87% in March. However, food price inflation was not uniform across items. Tomato inflation remained high at 35.28%, and cauliflower inflation reached 25.58%. On the other hand, potato prices decreased by 23.69% year-on-year, and onion prices decreased by 17.67%. The increase in food inflation should also be read with the rule in mind. The food price index rose only modestly on a monthly basis, but annual inflation continued to rise as prices compared to a softer base from April 2025.
Rural inflation was higher than urban inflation, both for the headline indicator and for food. The overall CPI inflation rate in rural areas was 3.74%, compared to 3.16% in urban India. The food inflation rate was 4.26% in rural India and 4.10% in urban India.
The most severe inflation remained in categories linked to precious metals. Inflation in the personal care, social protection, and miscellaneous goods and services department reached 17.66%, which is the highest among the main departments. Among the items, silver jewelry recorded an inflation of 144.34%, while gold, diamond and platinum jewelry witnessed an inflation of 40.72%.
The dual shock of El Niño and the energy crisis could lead to higher inflation this fiscal year, leading to higher interest rates. “Our model suggests that the El Niño/temperature channel could add 0.5 percentage point to inflation over a year. Adding this to our estimates from the energy shock (including our assumption of INR 6-7 per litre rise in petrol and diesel prices), we expect headline inflation to average 5.6% in FY27. On this basis, we expect the RBI to hike rates twice, during 4Q26 and 1Q27, raising the repo rate to 5.75%,” Bhandari said.
