India’s retail inflation has remained well within the upper limit of the Reserve Bank of India’s 2%-6% tolerance band since October 2024.
However, with energy prices still elevated, India’s benign inflation dynamics are at risk.
In April 2026, (CPI)-based inflation stood at 3.48%- a 13-month high- largely due to a rise in prices of food and beverages, clothing, housing and utilities amid rising energy costs driven by the West Asia conflict.
India’s surged to a 42-month high of 8.3% in April from 3.88% in March. This sharp rise in wholesale inflation was primarily due to higher fuel prices. The impact of the US-Iran war and the blockade of the Strait of Hormuz has slowly started to reflect in inflation prints.
A sharp jump in wholesale inflation can eventually lead to a gradual increase in retail inflation because merchants and traders may feel forced to pass on higher prices to consumers.
If energy supply remains disrupted for a prolonged period, the government may decide to further increase oil and gas prices, as oil marketing companies (OMCs) cannot sustain huge losses for much longer.
An increase in energy prices has a ripple effect on overall inflationary trends because energy is required for the production and transportation of almost all consumption goods.
The spectre of inflation resurfacing
According to a Moneycontrol report, the finance ministry expects CPI-based inflation, or retail inflation, to average in the range of 5.5% to 6% in FY27.
The worst part about the current inflation estimates is that they still cannot capture the full impact of elevated oil prices, as there is no clarity when the West Asian conflict will be finally settled, and the Strait of Hormuz will be fully open.
Moreover, this year, India may have an additional challenge in terms of poor monsoon, which may further raise food inflation, which is already expected to rise due to higher energy costs and the shortage of fertilisers.
“Under current conditions, the sharp rise in petrochemical and hydrocarbon-linked input costs, across products such as naphtha, ammonia gas, polyethylene, and furnace oil, poses a significant upside risk to retail inflation in FY27,” said Debopam Chaudhuri, Chief Economist, Piramal Group.
“Second-order effects arising from higher transportation and logistics costs are likely to further amplify inflationary pressures across the economy. If the situation remains unchanged, CPI inflation for FY27 could rise up to 5.2%,” said Chaudhuri.
However, Chaudhuri believes that if India’s average crude import basket cost moderates to around $95 per barrel before the end of the first half of FY27, headline retail inflation for the year could still be contained at around 4.8% or lower.
Radhika Rao, Senior Economist and Executive Director at DBS Bank, said that factoring in a modest scale of pump price hike and pipeline monsoon risks, annual inflation may average 4.9% year-on-year for FY27, before easing to 4% next year.
Rao highlighted that compared to retail inflation, the wholesale index is more sensitive to commodity and imported price pressures and is expected to rise further due to base effects and external factors.
“At an aggregate level, inflation faces a confluence of pressures – energy prices, second derivative impact via logistics and transport costs, higher input costs for businesses, a jump in global fertiliser prices which will result in higher subsidy outlay and vulnerable perishables,” said Rao.
How inflation could impact your daily expenses, EMIs, and investments
Higher inflation may erode the purchasing power of common citizens as the costs of food, transportation, and even education and medical care may rise. This could lead to cutting on luxury expenses such as eating out or holidaying.
Higher inflation may prompt monetary tightening, leading to higher interest rates on home and other loans. This could increase the EMI burden.
For investors, the situation is also bad, as higher inflation increases input costs, eroding companies’ profitability and leading to modest market returns that may be further lower, adjusted for inflation.
What should you do?
Varun Fatehpuria, Founder and CEO at Daulat Wealth Management, underscored that inflation often hits the middle class harder than any other group because a disproportionate share of their spending goes towards essentials, including food, fuel, transport, and housing. This leaves them with little discretionary spending, which thereby impacts the economy.
“For their long-term goals, they should make sure the savings aren’t sitting idle in instruments like FDs that earn less than inflation after tax,” said Fatehpuria.
Shashank Udupa, a SEBI-registered research analyst and Fund Manager at Smallcase, said that in a rising inflationary environment, one must try to reduce their lifestyle spends and EMIs as quickly as possible.
“Decrease expenses and increase savings in a diversified basket such as SIP, bonds, and gold. Gold is a very effective hedge against inflation. Having some investments in USD would also help fight your portfolio against inflation,” said Udupa.
Pravesh Gour, a senior analyst at Swastika Investmart, also emphasises that in a higher inflationary environment, financial discipline becomes crucial.
From an investment perspective, Gour said traditional low-yield savings instruments alone may not be sufficient to beat inflation over the long term.
“Diversified investments across equities, gold and inflation-resilient assets can help preserve purchasing power. Systematic investment plans (SIPs) may also help individuals benefit from long-term wealth creation despite short-term volatility,” said Gour.
Disclaimer: This story is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.