India’s retail inflation rose to 3.21% YoY in February 2026, up from 2.74% YoY in the previous month, primarily driven by a pickup in ‘food and beverages’ inflation.

‘Food and beverages’ inflation increased to 3.4% YoY, compared with 2.1% YoY in January 2026. Within this category, the sharp rise in ‘vegetables and pulses’ inflation, from -5.3% YoY in Jan’26 to 0.1% YoY, was the key contributing factor. Inflation in other food categories, including meat, fish, oils, and fruits, remained elevated.

Core CPI remained unchanged at 3.4% YoY in February 2026, supported by higher gold and silver prices. However, core inflation excluding gold and silver remained significantly lower at 1.9% YoY, indicating subdued underlying price pressures.

We currently expect inflation to remain anchored around 4% in FY27, assuming a timely resolution of the Middle East crisis. However, the outlook faces significant upside risks if crude oil prices remain elevated and are passed through to consumers. In addition, forecast models indicate a potential emergence of El Niño during the monsoon season, which could pose risks to agricultural output.

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