India’s retail inflation for April reached 3.48%, a 13-month peak. While this figure is only slightly above March’s 3.4% and still appears modest on the surface, that sense of stability is misleading. Wholesale inflation tells a different story. The Wholesale Price Index jumped to 8.3% in April, more than double the 3.88% recorded in March. That marks a 42-month high and shows considerable price pressure is building at the upstream level and has yet to fully filter down to consumers.
The sharp rise in WPI was driven largely by fuel and power costs, which climbed 24.71%. Within that category, petroleum and natural gas prices shot up by 67.2%. These numbers make it clear that the full burden of higher energy costs has not been transferred to households and end-users so far. But such a transfer now looks unavoidable. Union Petroleum Minister Hardeep Singh Puri recently suggested the Centre may soon have to increase retail prices of petrol and diesel. Public sector oil marketing companies are said to be incurring “under-recoveries” of close to Rs 30,000 crore each month since the outbreak of the U.S.-Israeli war with Iran. If pump prices are raised, the effects will be felt across the entire economy.
Even without that hike, April’s consumer inflation was already being pushed up mainly by food. The Consumer Food Price Index rose to 4.2% from 3.87% a month earlier. One of the clearest examples of this ripple effect is in restaurants and accommodation services, which saw some of the steepest increases. That reflects the impact of higher commercial LPG rates. Since the conflict began, the 19.2 kg commercial LPG cylinder has become costlier by roughly Rs 850 to Rs 1,000 through successive revisions. The 5 kg canister, widely used by migrant workers across India, has gone up by more than Rs 200 in many markets. Because it feeds directly into the cost of cooked food, this increase threatens to weigh on overall consumption demand.
These pressures come at a time when Prime Minister Narendra Modi has urged citizens to avoid extravagant spending on weddings and foreign travel and to reduce purchases of precious metals for a year. In line with that, the Centre doubled import duties on gold and silver to curb safe-haven buying and reduce stress on the rupee. The currency has weakened sharply, losing nearly 8.5% against the U.S. dollar in the last two and a half months since the conflict started. To put that in perspective, the rupee’s annual depreciation averaged only 2% to 3% over the previous five financial years. The current decline is therefore unusually steep.
Retail inflation looks ready to rise further in the coming months. The wide gap between CPI and WPI indicates producers are still absorbing much of the cost increase, but that is not sustainable indefinitely. As these costs get passed on, the Reserve Bank of India will have little option but to tighten monetary policy to keep inflation within its 2% to 6% tolerance band.
What we are seeing is not just short-term inflation caused by volatile commodity prices. There is a broader, systemic inflationary push underway. With fiscal and monetary space narrowing, both the government and the central bank face difficult choices ahead.
