India's retail inflation rises to 3.4% in March, stays below RBI target despite fuel pressures

India’s retail inflation eased to 3.40% in March, remaining below the Reserve Bank’s medium-term target of 4% for over a year, according to official data released on Monday.

Inflation in rural areas was higher at 3.63%, while urban inflation stood at 3.11% during the month.

Food inflation, measured by the Consumer Food Price Index (CFPI), came in at 3.87% in March, with rural and urban rates at 3.96% and 3.71%, respectively.

Housing inflation for the month was recorded at 2.11%, with rural inflation at 2.54% and urban at 1.95%.

Despite a spike in crude oil prices following the US-Israeli conflict with Iran, domestic retail inflation has remained largely stable after the government cut taxes on petrol and diesel to protect consumers.

Vikrant Chaturvedi, Associate Director - Research, Brickwork Ratings, said the inflation reflects a calibrated increase in price pressures while remaining comfortably within the RBI's target band.

"The data indicate that higher energy and fuel-related costs are beginning to exert upward pressure, even as food inflation, at 3.87%, remains broadly manageable," Chaturvedi said.

"Overall, the inflation print suggests that macroeconomic stability is intact, but the evolving global environment, particularly volatility in crude oil markets, calls for continued vigilance."

The Reserve Bank of India (RBI), which last week kept its key policy rate unchanged, has projected retail inflation at 4.6% for the current financial year.

The central bank, however, warned that risks are tilted to the upside due to rising global energy prices and weather-related uncertainties.

“Although retail prices of petrol and diesel have remained unchanged so far, the pass-through of higher global energy prices has resulted in some increase in prices of a few items,” RBI Governor Sanjay Malhotra said in his monetary policy statement.

The RBI expects food prices to remain comfortable in the near term, supported by strong rabi crop output, adequate reservoir levels and sufficient buffer stocks of food grains.

"The RBI is likely to maintain its neutral stance through the next quarter, as persistent services inflation and volatility in precious metals offset relief in the food basket," Chaturvedi added.