India’s March retail inflation quickens to 3.4% as US war on Iran disrupts global trade flows

India’s retail inflation quickened to 3.4% year-on-year in March from 3.21% in February, according to government data released on Monday, as geopolitical tensions and supply-side pressures from the Middle East began to weigh on prices.

Rural inflation stood at 3.63%, while urban inflation was 3.11% under the revised CPI series that uses 2024 as the base year.

A Reuters poll of 45 economists had estimated that inflation likely edged up modestly to 3.48% in March, with a sharp rise in fuel prices partially offset by a roughly 11% fall in gold prices during the month following escalation in tensions linked to the Iran war.


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Despite the uptick, inflation has remained below the Reserve Bank of India’s 4% medium-term target band (2%–6%) for 12 consecutive months under the revised framework.

Food inflation, which carries the largest weight in the CPI basket, rose to 3.87% in March, compared with 3.47% in February, according to data released by the Ministry of Statistics and Programme Implementation. Inflation in electricity, gas and other fuels category stood at 1.65%.

At the all-India level, some kitchen staples continued to remain in deflation in March. Inflation in garlic stood at -10.18%, compared with -31.10% in February, while onion prices declined -27.76%, slightly narrower than the -28.20% contraction a month earlier. Potato prices also remained in negative territory at -18.98%, compared with -18.47% in February.

“The CPI inflation came in line with our expectations. We expect the trajectory to continue to trend higher, while remaining watchful on the risks from sub-par monsoons and second order pass through of higher input prices and weakening INR. However, we expect the RBI to maintain stays quo on rates in the foreseeable future as more clarity emerges between the balance of risks between growth and inflation,” Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank said.

Services and household components

Price pressures in several services and household segments also remained in focus under the revised CPI basket.

Housing inflation stood at 2.11% in March, compared with 2.12% in February. Inflation in clothing and footwear was recorded at 2.75%, against 2.81% in February.

Inflation in restaurants and accommodation services stood at 2.88%, compared with 2.73% in February, while health inflation was recorded at 1.75%, compared with 1.90% in the previous month.

Inflation in information and communication services stood at 0.82%, compared with 0.25% in February.

High inflation in metals

Among items recording the highest inflation in March, silver jewellery inflation stood at 148.61%, compared with 160.88% in February, while gold, diamond and platinum jewellery prices rose 45.92%, down from 48.17% a month earlier, according to the data.

Middle East tensions

The latest inflation reading comes against the backdrop of heightened geopolitical uncertainty involving Iran, Israel and the United States, raising concerns over global oil supply disruptions.

Tensions escalated after the US imposed a naval blockade on Iranian ports, unsettling energy markets and intensifying regional hostilities. The move has put pressure on the Strait of Hormuz, a critical route for global oil shipments. Washington said the restrictions would target vessels linked to Iranian maritime activity while still allowing transit to non-Iranian ports to reduce wider disruption.

Tehran, however, rejected the pressure and warned of retaliation, further deepening market uncertainty.

RBI flags external risks but stresses resilience

At its April Monetary Policy Committee meeting, the Reserve Bank of India noted that while India’s macroeconomic fundamentals remain strong, external shocks could intensify if global tensions persist or expand.

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“The fundamentals of the Indian economy are on a stronger footing, providing it with greater resilience to withstand shocks now than in the past. The economy is confronted with a supply shock. It is prudent to wait and watch the changing circumstances and the evolving growth-inflation outlook,” Reserve Bank of India Guv Sanjay Malhotra had said.

Revised CPI basket changes the base

This marks the third inflation reading under the revised CPI framework, which updates the base year to 2024 from 2012 and revises the consumption basket to better reflect current spending patterns.

Under the new series, the combined weight of food and beverages has declined to 36.75% from 45.9%, though it remains the largest component of the index. Food alone now accounts for 34.77%.

The weight of housing, utilities, and fuel-related categories has risen to 17.7% from 16.9%, while services such as transport, communication, and household services now carry higher representation.

The updated basket also includes new-age consumption items such as rural housing, OTT subscriptions, value-added dairy products, and digital storage devices, while removing outdated categories like VCRs and audio cassettes.

RBI outlook for FY27 inflation

The Reserve Bank of India’s Monetary Policy Committee has projected CPI inflation at 4.6% for FY27, with quarterly estimates of 4.0% in Q1, 4.4% in Q2, 5.2% in Q3, and easing to 4.7% in Q4.

Core inflation is projected at 4.4%. The central bank also noted this is the first time it has provided such a detailed quarterly breakdown, reflecting increased focus on transparency and stakeholder inputs.

Since the last policy review, the RBI has said global uncertainty has increased. While inflation remains broadly contained, upside risks persist, including potential second-round effects if geopolitical pressures continue to build.