Inflation "four consecutive increases"! India's February CPI rises to 3.21%, policy space under pressure amid energy crisis shadows

Due to the escalation of conflicts in the Middle East and the impact on energy supply, inflationary pressures in India continue to rise.

On March 12, data from the Indian Ministry of Statistics showed that the Consumer Price Index (CPI) in February increased by 3.21% year-on-year, higher than the previous value of 2.74% and market expectations, marking the fourth consecutive month of increase. Meanwhile, Brent crude oil prices have surpassed $100 per barrel, and the Strait of Hormuz is effectively blocked, posing a direct energy threat to India, one of the world's largest crude oil importers.

The rebound in inflation combined with the impact of rising oil prices has further narrowed the monetary policy space for the Reserve Bank of India (RBI). Nomura pointed out in its report that the rise in oil prices is compressing expectations for interest rate cuts, and it is expected that the policy rate will remain unchanged. Bloomberg reported that RBI Governor Sanjay Malhotra had previously signaled that interest rates would remain unchanged for an extended period, and economists generally expect that the policy stance will not shift in the short term.

Inflation Continues to Rise, Food Items as the Driving Force

This release marks the second CPI data after India adopted a new base year series. The Indian government adjusted the CPI base year from 2012 to 2024 in February this year, citing significant structural changes in consumption behavior, income levels, urbanization processes, service sector expansion, and digitization.

From the sub-item data, the food inflation rate in February rose by 3.47% year-on-year, higher than January's 2.13%, becoming the main factor driving the CPI increase.

Despite inflation rising for four consecutive months, the current reading of 3.21% remains within the RBI's target range of 2% to 6%. The RBI projected at its monetary policy meeting on February 5 that the inflation rate for the current fiscal year would remain around 2.1% and considered the recent food supply outlook to be "still optimistic."

Strait of Hormuz Blocked, India Sounds Energy Alarm

The impact of the Middle East situation on India's energy security is accelerating. The Indian government disclosed on Wednesday that approximately 30% of crude oil supply and 90% of liquefied petroleum gas (LPG) imports need to be transported through the Strait of Hormuz. As the situation in the Middle East escalates, shipping through the strait is severely obstructed, and Brent crude oil prices have surpassed $100 per barrel.

As the main cooking fuel for Indian households, LPG has not yet shown significant shortages in the civilian market, but prices have begun to rise. According to CNBC, due to the priority of supply for civilian demand, hotels and restaurants using commercial LPG are facing supply compression pressures, and some businesses have already fallen into a state of closure.

Narrowing Policy Space, Growth Narrative Under Challenge

Nomura pointed out in its report that the "golden girl narrative" of "strong growth and low inflation coexisting" presented under India's new statistical series is facing real challenges from rising oil prices and fuel shortages.

According to Bloomberg, before the outbreak of the Middle East crisis, the RBI had expected inflation to remain around the 4% target by September. Analysts believe that the continuously rising energy costs will exert further upward pressure on inflation and may drag down economic growth, which relies on imports.

Experts indicate that although current inflation remains within the RBI's target range, it is not sufficient to trigger policy adjustments on its own; however, the evolution of the Middle East situation will become a key variable in determining the central bank's next steps. If the crisis persists, the policy path may face reassessment