Inflation – CPI Edges Higher for Third Month Amid Monsoon Concerns
Inflation – India’s retail inflation, measured by the Consumer Price Index (CPI), recorded a third straight monthly increase in March 2026, according to a research note by the State Bank of India. Despite expectations of below-normal rainfall in the upcoming fiscal year, the report indicates that food prices may remain relatively stable, allowing interest rates to stay lower for an extended period.
Gradual Rise in Retail Inflation
The CPI inflation rate rose to 3.40% in March from 3.21% in February, continuing a steady upward trend under the revised 2024 base year series. The increase was largely driven by higher prices in categories such as paan, tobacco, intoxicants, and essential household expenses including housing, water, and fuel.
Notably, the inflation rate for paan, tobacco, and related products climbed to 4.25%, while housing and utilities saw a rise to 1.98%. On the other hand, personal care and services witnessed a decline, mainly due to softer prices of gold and silver during the period.
Uneven Trends Across States
While core inflation at the national level saw only a slight dip to 3.38%, the situation varied significantly across states. Some regions reported core inflation levels exceeding overall inflation, while others remained below it.
Telangana stood out, with core inflation approaching the 6% mark. This uneven distribution highlights regional differences in consumption patterns and pricing pressures, suggesting that inflationary trends are not uniform across the country.
Imported Inflation Adds Pressure
External factors continue to influence domestic inflation. Imported inflation, which carries a weight of over 21% in the CPI basket, rose to 6.49% in March. Its contribution to overall inflation has now reached approximately 43%.
Certain states have experienced sharper increases. Telangana’s imported inflation crossed 12%, while states like Kerala, Uttar Pradesh, Tamil Nadu, and Andhra Pradesh reported levels around 7.5%. Only Goa and Delhi recorded imported inflation below their overall inflation rates, reflecting relatively lower external cost pressures.
Rural and Urban Inflation Movement
Both rural and urban areas saw a modest rise in inflation during March. Rural inflation edged up slightly, while urban inflation also recorded a marginal increase.
In rural regions, the surge was mainly attributed to a sharp rise in personal care and services, along with increased prices of paan and tobacco. Urban areas, meanwhile, experienced the highest increase in similar categories, although personal care inflation showed some moderation compared to previous months.
Monsoon Outlook and Food Prices
The India Meteorological Department has forecast below-normal rainfall for the current fiscal year, estimating the southwest monsoon at 92% of the long-period average. This has raised concerns about agricultural output, particularly for the kharif season.
However, the SBI report emphasizes that the relationship between rainfall and food inflation is not always direct. Historical data shows that years with adequate rainfall have sometimes seen high food inflation, while years with lower rainfall have experienced relatively stable food prices.
Additionally, strong buffer stocks—especially rice reserves estimated at 380 lakh metric tonnes—are expected to help manage any potential supply disruptions. The report also highlights that the geographical distribution of rainfall will play a crucial role. Some regions, including parts of the Northeast, Northwest, and southern peninsula, are likely to receive normal or above-normal rainfall.
External Risks and Currency Volatility
Global developments remain a key concern for India’s inflation outlook. Continued foreign portfolio investor outflows, amounting to nearly $6.9 billion recently, have added pressure on the rupee. Increased geopolitical tensions, particularly in West Asia, have also contributed to volatility in global markets.
Such developments could disrupt supply chains, especially in energy and maritime trade, potentially pushing up imported inflation further. The report suggests that long-term structural reforms will be more effective in stabilizing the balance of payments and currency than short-term interventions.
Outlook Remains Stable
Despite the recent uptick in inflation and external uncertainties, the overall outlook remains relatively stable. The report concludes that even with below-normal rainfall expected in FY27, the impact on food prices is likely to be limited. As a result, interest rates may remain lower for a longer duration, supporting economic stability.