India Inflation Seen Rising To 3.48% In March As Fuel Costs Offset By Gold Price Drop

India’s retail inflation likely edged up to 3.48% in March from 3.21% in February, according to a Reuters poll conducted between April 6 and April 9, reflecting the impact of higher fuel prices amid global tensions.

Invest in Indian Markets and Unlock Future Potential With 5paisa!

Open Account Now

The estimate is based on responses from 45 economists and indicates that inflation, measured by the Consumer Price Index (CPI), remained below the Reserve Bank of India’s medium-term target of 4%.

Fuel Prices Rise Amid Global Tensions

Fuel inflation increased sharply during March following the escalation of the U.S.-Iran conflict that began on February 28, which pushed global crude oil prices higher and led to supply disruptions.

According to HDFC Bank estimates cited by Reuters, fuel inflation rose around 11% year-on-year in March, compared to 0.1% in February. Prices of Brent crude continued to remain about 30% above their levels in February, even after the ceasefire declaration, putting pressure on prices.

Taxes on petrol and diesel were cut by the government during the month, mitigating some of the effect of rising international prices on domestic consumer prices.

Fall in Gold Prices Provides Relief

A fall in gold prices played a big part in offsetting the adverse effects of rising oil prices. Spot gold prices fell more than 11% in March, making for one of the largest falls seen recently.

According to Reuters, the fall in gold prices reduced pressure on core inflation, which excludes food and fuel components. Core inflation is estimated to have increased slightly to 3.53% in March from 3.41% in February.

Food Prices And Wholesale Inflation

Moderation prevailed in food inflation during the month, owing to stable supply situations, and thus added to the overall controlled level of inflation.

The estimate on wholesale price inflation has also gone up as per the Reuters forecast, which suggests a rise in the index to 3.04% in March, from 2.13% in February.

Reserve Bank Of India Outlook And Policy Environment

The RBI maintained the policy rate steady in its recent monetary policy statement, justifying the expectations. The central bank has estimated average inflation at 4.6% for the ongoing financial year.

As per the figures, even though there was pressure from higher fuel prices, softening gold prices, and controlled food inflation ensured that the retail inflation stayed within the RBI's target range.