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As investors gauge the full impact of the West Asia war on crude oil-led inflation, another problem seems to be emerging. The India Meteorological Department and private forecaster Skymet Weather Services predict rainfall in the June-September monsoon season may fall short of the long-term average. El Niño conditions could develop and weaken the monsoon. Subdued rainfall threatens India's inflation comfort.
The southwest monsoon is critical for irrigation in India. Below-normal rainfall can hurt kharif crop production. This hits agricultural output, farmer incomes and rural consumption, which was earlier slated to improve led by cuts in the goods and services tax rates. The impact of subdued rainfall on food prices depends on the spatial and temporal distribution of the monsoon.
“Over the last few years, the correlation between monsoon outcomes and food inflation has weakened due to better supply management and adequate foodgrain stocks,” said Gaura Sen Gupta, economist at IDFC First Bank.
But there is an upside risk to the FY27 consumer price index (CPI) inflation estimate of 4.9% if food inflation rises significantly, she cautioned.
CPI inflation rose to 3.4% in March from 3.2% in February. While this is well below the Reserve Bank of India’s medium-term target of 4%, the uptick from lower levels has begun. The rise in CPI in March was mainly driven by components of food and beverages (36.8% weightage in the CPI basket), electricity, gas and other fuels and restaurants and accommodation services.
Increased prices of commercial and domestic gas cylinders pushed inflation in the gas and fuel category. Restaurants seem to have passed on rising food and fuel costs to consumers to some extent.
While the government increased domestic LPG cylinder prices, it has kept retail prices of diesel and petrol unchanged. However, it has cut fuel taxes to absorb higher crude oil prices. This insulated retail inflation from the energy price shock in March.
But with excise duty cuts on fuels effective since late-March, there is the possibility of a retail fuel price hike after state elections conclude in April, especially if crude oil prices stay elevated, said Emkay Global Financial Services. A blended increase of Rs10/litre across petrol and diesel prices would lead to a 35-40 basis points (bps) rise in headline CPI; a further increase of 15-20 bps via second-order effects and passthrough is possible, Emkay said in a report on 13 April.
The second-order impact on core inflation comes via higher energy consumption and transportation costs.
Companies now stare at a double whammy of rising input costs and weak rural demand. The automobile (tractor, two-wheelers), paint and FMCG product sectors could feel the heat as rural volumes taper.
The trajectory of Wholesale Price Index inflation and its divergence from CPI inflation will be an important gauge of the margin pressures building in the manufacturing sector, Nomura Global Markets Research said.
This is troublesome for already battered Indian equities. So far in 2026, the MSCI India index is down 7% versus positive returns by the MSCI Asia Ex-Japan index, Bloomberg data showed. India’s valuation at 17x one-year forward price-to-earnings multiple is still relatively at a premium.
Some global brokerages including Nomura recently downgraded ratings on Indian equities, worried by macro and micro implications of elevated crude prices.
The comeback of inflation is now a worldwide concern. BofA Securities' latest global fund manager survey showed that inflation expectations jumped to their highest since May 2021. Consequently, stagflation (slow growth, high inflation) expectations rose to 76%, from 51% a month earlier.
Harsha Jethmalani is a Deputy Editor at Mint with over a decade of experience covering stock markets and corporate India. As a key member of the Mark to Market team, she specializes in delivering cutting-edge commentary on market trends, the economy, and corporate financial reports.Born and raised in Mumbai, Harsha’s entry into business journalism was a serendipitous pivot. Graduating during the 2008–2009 financial crisis, her initial goal of becoming a research analyst at an MNC was rerouted. However, what began as a chance career move quickly became a conscious choice; she discovered that financial journalism is a powerful storytelling tool capable of influencing and empowering the financial decisions of a massive audience.Harsha began her career in 2009 at IRIS Business Services (Myiris.com), tracking mutual funds and interviewing fund managers. In 2011, she joined the Network18 Group, writing extensively on equity market trends for Moneycontrol.com and hosting pre- and post-market audio updates. Following a stint covering personal finance at Dalal Times, she joined Mint in 2016 as a Content Producer, steadily rising through the ranks to her current editorial position.A defining highlight of her tenure at Mint was her extensive coverage of India's historic Goods and Services Tax (GST) reform. She chronicled the massive indirect tax overhaul from its initial conceptual and execution hurdles to its eventual streamlining. Her impactful reporting earned official recognition when her article exposing a spike in gold smuggling ahead of the GST rollout was formally acknowledged by the Office of the Director General of Audit (Central), Kolkata. Currently, Harsha closely tracks the IT, cement, real estate, and paint sectors. Her sharp news sense and ability to spot emerging trends consistently bring fresh, actionable perspectives to market analysis.She holds a postgraduate degree in financial markets from Indira Gandhi National Open University and a Bachelor of Management Studies from Vivekanand Education Society, Chembur, Mumbai.