We estimate retail inflation to rise to 4% in March from 3.2% in February 2026. This assumes a sequential rise of 0.8% m-o-m in March compared to 0.1% rise in February. The risk to this forecast is tilted towards the upside. The pick-up is primarily estimated to come from higher fuel inflation. For core inflation, we estimate a more moderate increase at this stage (to 3.5% in March from 3.4% earlier) as the pass-through to retail inflation ( given second round effects of the rise in commodity prices) is likely to be gradual initially. Moreover, the continued fall in gold and silver prices could partially offset any increase in other categories within the core basket. 

Currently, we estimate CPI inflation to average close to 5% for FY27. This aligns with inflation averaging at 4.8% in Q1 and Q2 FY27 and rising above 5% in Q3 FY27. This forecast assumes that the Iran conflict de-escalates over the coming weeks and oil price averages at USD 80-85 pbl. for FY27 (earlier forecast of USD 65 pbl.). Moreover, we assume that any weather-related disruptions are limited. Therefore, at this stage, the risks to our forecasts are skewed towards the upside and would be determined by the duration of the conflict as well as El-Nino related developments over the coming months.

 We anticipate the RBI to revise up its inflation forecast in the upcoming policy meeting by close to 50bps at least compared to earlier estimates. To recall in the last policy meeting, the RBI had estimated inflation at 4% in Q1 and 4.2% in Q2 FY27. We will also get the first full year estimate for FY27 from the RBI in this policy announcement. 

March Inflation Preview: Details 

Higher Fuel Inflation: Fuel inflation is estimated to rise by ~11% y-o-y compared to 0.1% y-o-y in February. Within the fuel basket, LPG prices are estimated to have registered an increase of ~5.6% m-o-m in March-26 (LPG cylinder price was increased by INR 60 per 14.2 kg on 7th March 2026). Moreover, we estimate an increase in firewood and chips prices, as households have increased their reliance on alternate energy sources. As per reports, due to a surge in demand, firewood prices have increased by ~ 50-150% m-o-m. If we assume the increase to be at the lower end of this range, headline CPI is expected at 4%. On the other hand, if there is a higher pressure from firewood prices, headline CPI could print closer to 4.5% in March. 

Food and Beverages inflation is expected to remain broadly comfortable -- at 3.7% y-o-y in March-26 vs 3.4% in February-26. Although we do anticipate a rise in the sequential momentum in March. This estimate is based on - 1) an increase in mandi prices for pulses and 2) rise in oils and fats (1.1% m-o-m in March) visible in daily data. On the other hand, this is being partially offset by continued moderation in vegetable and cereal prices during the month. 

Core inflation is estimated to inch up to 3.5% in March-26 vs 3.4% in February. On the one hand, we could see some increase in categories such as "transport", "restaurants & accommodations" during the month while on the other hand, we anticipate some comfort from the fall in gold and silver prices (down 3-5% m-o-m in March). 

Beyond energy, risk from El Nino: While food inflation has broadly remained supportive over the last 12 months on account of healthy agricultural harvest, there is an emerging risk from weather related disruptions over the coming months. As per the latest forecast (IRI, Columbia Climate School), El-Nino probabilities have become higher (at 62%) than ENSO-neutral from May-July onwards. This period also coincides with the start of SW monsoon and kharif sowing. Historically, El-Nino events tend to reach their maximum strength during October-February (coinciding with kharif harvesting and rabi sowing). On the other hand, if a positive IOD develops, it could help to partially offset the impact of an El-Nino. As per the latest forecast (Bureau of Metrology, Australian Government), IOD is expected to remain neutral in early 2026 and could move towards a positive phase by mid-2026. Therefore, at this stage, the risk of El Nino and extent of impact on India remains uncertain. We have not incorporated an adverse El Nino year for now in our CPI projections.