Retail inflation edges up in February as food prices firm up

India’s retail inflation rose to 3.21% in February from 2.74% in January, the second reading under the new Consumer Price Index (CPI) series with base year 2024=100, as food prices firmed up and a surge in precious metals inflated parts of the basket.

Even so, the print stayed below the Reserve Bank of India’s (RBI’s) 4% target and well within its 2% to 6% tolerance band, leaving policymakers with a deceptively calm headline number just as the external backdrop turns uglier.

The details show a split story. Food inflation rose to 3.47% from 2.13% a month earlier, while headline rural inflation came in at 3.37% and urban at 3.02%.

A statement form the Ministry of Statistics and Programme Implementation (MoSPI) pointed to a sharp month-on-month cooling in tomatoes, peas and cauliflower, yet the year-on-year picture reflected heavy volatility in vegetables and staples.

At the same time, the “personal care, social protection and miscellaneous goods and services” section posted inflation of 19.64%, and one sub-group, “other personal effects,” which includes jewelry, rose 60.8%.

Item-wise, silver jewelry inflation was 160.84% and gold, diamond and platinum jewelry inflation was 48.16%, making bullion an unusually visible contributor to the print. Transport inflation, by contrast, was negative at -0.05%, a sign that the full oil shock has not yet passed through to consumers.

That matters because February’s number is backward-looking, while markets and policymakers are already trading the risk of imported inflation.

Reuters reported that Brent crude briefly climbed above $119 a barrel earlier this week, the highest intraday level since mid-2022, before easing.

The rupee also hit a record low of 92.3575 per dollar on 12 March before trimming losses.

Those moves were tied to the expanding US-Israel-Iran conflict and renewed attacks on oil and transport infrastructure, developments that matter far more for India’s inflation path than the relatively tidy February print by itself.

India imports nearly 90% of its crude requirements and about half of its gas needs, with more than half of crude supplies coming from the Middle East.

Reuters, citing economists and official assessments, said a prolonged period of $100 oil could widen India’s current account deficit to 1.9% to 2.2% of GDP in 2026-27 from a projected 0.7% to 0.8%, while also lifting inflation and straining the fiscal math through higher subsidies and pressure to shield retail fuel users.

The International Energy Agency went further, calling the current disruption the largest oil supply shock in history, with global supply expected to fall by 8 million barrels a day in March because of the Strait of Hormuz blockade.

Core inflation, which strips out food and energy, was estimated by ICRA at 3.4% in February, suggesting domestic demand pressures remain contained.

Some economists said the immediate problem is not a broad-based overheating of the Indian economy, but the risk that energy, LPG and logistics costs begin feeding into later prints.

Aditi Nayar of ICRA expects headline CPI to move up to about 3.3% to 3.5% in March, partly because of higher LPG prices and continued firmness in precious metals. Others, including economists at SBI and Emkay, have warned that a sustained $100 crude environment would push inflation closer to or above 4% over the next fiscal year.

From a monetary policy standpoint, February gives RBI room to wait. The central bank held rates steady in February after earlier cuts, and its next policy meeting is scheduled for 6 to 8 April. With growth still looking solid and the new GDP series showing real GDP expansion of 7.6% in FY2025-26, the central bank can justify patience. But that patience is now hostage to oil, the rupee and the durability of supply disruptions, not merely to domestic food prices, analysts said.

The state picture also underlines that inflation is no longer a single national story. In the MoSPI statement, Telangana recorded the highest combined inflation among states with populations above 5 million at 5.02%, followed by Rajasthan at 3.53%, Kerala at 3.50%, Andhra Pradesh at 3.45% and West Bengal at 3.44%. Delhi, by comparison, was at 1.96%.