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India’s April retail inflation, at a 13-month high of 3.48%, is only marginally higher than its March print of 3.4%, and continues to remain deceptively benign. Wholesale inflation has more than doubled to 8.3% in April from 3.88% in March — a 42-month high — signalling that substantial upstream price pressures are still working their way through the economy. Unsurprisingly, the spike in the Wholesale Price Index (WPI) has been led by soaring fuel and power prices, which rose 24.71%, while petroleum and natural gas prices surged 67.2%. This clearly indicates that the full impact of rising energy costs has not yet been passed on to end-consumers. However, such a pass-through now appears imminent. Union Petroleum Minister Hardeep Singh Puri recently indicated that the Centre may have little choice but to raise retail petrol and diesel prices, with public sector oil marketing companies reportedly absorbing “under-recoveries” of nearly ₹30,000 crore a month since the U.S.-Israeli war with Iran began. Any increase in retail fuel prices will have economy-wide implications.

April retail inflation has already been driven chiefly by food, with the Consumer Food Price Index rising to 4.2% from 3.87% in March. Predictably, restaurants and accommodation services witnessed among the sharper increases, reflecting the cascading effect of rising commercial LPG prices. The price of the widely used 19.2 kg commercial LPG cylinder has risen by roughly ₹850-₹1,000 over revisions since the conflict began, while the 5 kg canister has reportedly seen increases of over ₹200 in several markets. The canister is extensively used by migrant wage labour across the country, directly feeding into food basket costs and potentially dampening consumption demand. This comes even as Prime Minister Narendra Modi has appealed to people to refrain from “extravagant spending on weddings and travel abroad” and to cut back on buying precious metals for a year. Consequently, the Centre doubled import duties on gold and silver in an attempt to discourage safe-haven investments and ease pressure on the rupee, which has depreciated by nearly 8.5% against the U.S. dollar in the past two-and-a-half months since the conflict began. For context, the rupee had depreciated by roughly 2%-3% annually on average over the previous five fiscal years. The current slide is therefore exceptionally sharp. It is increasingly evident that retail inflation is bursting at the seams and will likely find fuller expression in the months ahead. The sharp divergence between the Consumer Price Index and WPI suggests that producers are still absorbing a significant share of rising costs, a situation that is unlikely to remain sustainable. This leaves the Reserve Bank of India with limited room but to eventually tighten monetary policy in order to keep inflation within its tolerance band of 2%-6%. What is unfolding is not merely transient inflation driven by commodity volatility, but also broader systemic inflationary pressure, with limited manoeuvring space for both the government and the central bank.