Modest CPI uptick amid rising volatility concerns: Report

India’s Consumer Price Index (CPI) inflation edged higher for the third consecutive month, rising to 3.40 per cent in March 2026 from 3.21 per cent in February. The uptick comes despite expectations of below-normal monsoon rainfall in FY27, though the report maintains that overall price pressures remain contained for now, according to a research report by the State Bank of India.

The inflation rise is attributed mainly to increases in prices of paan, tobacco and intoxicants, along with higher costs in housing, water, and fuel categories. The shift marks a continued upward trend under the revised 2024 base year series.

Key Drivers: Tobacco, Housing and Fuel Costs

Add Zee Business as a Preferred Source

The report highlights that inflation in the paan, tobacco and intoxicants category rose to 4.25 per cent in March from 3.44 per cent in February. Meanwhile, the housing, water, and fuel segment also strengthened, increasing to 1.98 per cent from 1.48 per cent.

In contrast, the personal care and services segment saw a notable moderation, largely due to easing gold and silver prices.

Core Inflation: Mild dip but uneven across states

While all-India core inflation declined marginally by 2 basis points to 3.38 per cent, the report notes significant variation across states.

While some of the states have managed to show their core inflation above the CPI levels, others have recorded lower core inflation than CPI. Amongst these states is Telangana, which has shown its core inflation close to 6 per cent.

Imported inflation remains elevated

Imported inflation continues to be a concern amid global volatility and currency fluctuations. It rose to 6.49 per cent in March 2026 from 6.35 per cent in February, accounting for a significant share of overall inflation impact.

The report estimates that imported inflation now contributes around 43 per cent of total inflation, underscoring India’s sensitivity to external price shocks. States such as Telangana report imported inflation above 12 per cent, while Kerala, Uttar Pradesh, Tamil Nadu, and Andhra Pradesh hover around 7.5 per cent.

Only a few states, including Goa and Delhi, show imported inflation below their overall CPI levels.

Rural and urban inflation edge higher

Both rural and urban inflation recorded a mild increase in March. Rural inflation rose to 3.36 per cent, while urban inflation climbed to 3.10 per cent.

In rural areas, the sharpest movement was seen in:

• Personal care and services
• Paan, tobacco and intoxicants

Urban inflation also showed a marginal rise in tobacco-related categories, while personal care services witnessed a slight easing.

Monsoon outlook raises concerns, but impact may be limited

The India Meteorological Department (IMD) has forecast a potentially deficient southwest monsoon at around 92 per cent of the long-period average (LPA) for the current fiscal year.

Yet, the SBI report warns against drawing a simple conclusion that rainfall influences food price inflation. The historical data reveal a mixed picture, where even in cases of moderate rainfall, food price inflation has been high, whereas low rainfall seasons have been accompanied by stable prices.

Buffer stocks and distribution key to food inflation stability

The report notes that India’s foodgrain buffer stocks, particularly rice at around 380 LMT, remain comfortable and sufficient to manage potential supply disruptions.

It also emphasises that food inflation is more influenced by spatial rainfall distribution rather than overall monsoon performance. Even with rainfall near 92 per cent of LPA, food inflation risks may stay contained unless deficits are concentrated in key agricultural regions.

External Risks: FPI outflows and currency volatility

The report also flags continued foreign portfolio investor (FPI) outflows and rupee volatility as external risks. Global uncertainties, including geopolitical tensions, are contributing to capital outflows and exchange rate pressures.

While volatility remains elevated, the report suggests that long-term structural reforms and improvements in India’s balance of payments will help stabilise the rupee over time.

Commenting on geopolitical developments, the report observed, "As the badly mediated talks in Islamabad gravitated towards the abyss of a near certain failure, volatility lapped global markets again with the threats of US to intercept/divert/ capture vessels passing through the blockaded area stoking fears of heightened pressure on supply chains, chiefly energy prices and maritime trade and upward pressure on imported inflation." It added, "The tacit move of US seems to be multi fold, we believe; forcing Asian majors (to pressurize Tehran to come to deal table), nudging NATO to reconsider its approach should the aggression reach another territory and enabling select oil behemoths to have a larger say in the alternate supply chains that may continue even when conflict is amicably resolved," ANI reported.

Outlook: Inflation stable, rates likely lower for longer

Despite a gradual rise in CPI inflation and concerns over monsoon performance, the report maintains a relatively stable outlook. It expects limited impact on food prices and suggests that interest rates are likely to remain lower for longer, supported by contained inflationary pressures and adequate buffers in the system.