Crisil Economy First Cut: Further up

Inflation based on the revised Consumer Price Index (CPI) series, with 2024 as the base year, rose to 3.2% in February from 2.7% in January as food inflation further normalised even as fuel inflation remained benign and core inflation was unchanged. The rise in food inflation was driven primarily by vegetables, readymade food and other food products (spices in particular), fruits and nuts, and oils and fats.

Against the backdrop of the ongoing Middle East conflict, inflation in some categories will need close monitoring, as these could face first-round effects of higher global prices.

• Within the non-food category, fuel and transport inflation could be the first to face pressures from higher oil and gas prices and supply shocks
  • The recent Rs 60 increase in domestic liquefied petroleum gas (LPG) cylinder prices should push up LPG inflation from March vs 1.6% in February
  • Rising global fuel prices, if they persist longer, could also put upward pressure on the transportation category, particularly, petrol, diesel, compressed natural gas and airfare
• Among other non-food categories, precious metals inflation—which, in our base case, is expected to see a slow pick-up due to a high base—could see price pressures if the conflict intensifies, driving up safe-haven demand for gold