Oil shock looms, but India's inflation shield likely to hold

Even a 10% increase in oil prices may add only 40-60 basis points to inflation, say economists

- Subhana Shaikh

India's strategic petroleum reserves and OMC price absorption could help limit any immediate pass-through to retail fuel prices.

(MINT)

India’s inflation outlook remains stable despite the US-Israel-Iran war pushing global crude prices higher, four economists told Mint, citing low prices, adequate strategic reserves, and the government's ability to cushion fuel shocks from spilling into retail prices.

In January, Consumer Price Index (CPI)-based inflation, under a revised data series, stood at around 2.75%, significantly below the Reserve Bank of India's medium-term target of 4%.

With inflation currently subdued and a newly introduced CPI series indicating broadly similar trends to the old base-year data, the economists said the starting point itself provides a strong buffer against external shocks, likely preventing any immediate pressure on retail inflation or RBI's monetary policy outlook.

For 2025-26, RBI has projected CPI inflation at 2.1%, with the March quarter at 3.2%, Inflation for the June and September quarters is seen at 4% and 4.2%, respectively, suggesting the current price environment is far more benign than during previous geopolitical shocks.