A double oil shock and some inflation pains

The Reserve Bank of India (RBI)’s bi-monthly Inflation Expectations Survey of households in March 2026 shows the perceived inflation to be 7.2%. This is more than double the official Consumer Price Index (CPI)-based reading of 3.2% for February. The CPI was recently revamped to be more representative of true inflation. The RBI survey also shows households expect prices to rise 8.5% over the next three months and 8.8% over the year. This is not a statistical quirk or popular pessimism. It is lived experience. The gap between official data and ground-level perception of reality has rarely been more politically charged.

Meanwhile, India is caught in a double oil squeeze. The first is fuel. With crude at $115 per barrel in March, driven by the West Asia conflict, transport and power costs, and the prices of virtually all manufactured goods are rising. The RBI itself acknowledges that its baseline assumption of $85 per barrel for the year could easily be breached if hostilities resume. The ceasefire between the US and Iran, announced earlier this month, is fragile. Peace talks have failed. A resumption of conflict would sharply increase oil prices and, therefore, Indian inflation.

The second oil is what Indians use for cooking. India imports nearly 90% of its edible oils: palm from Indonesia and Malaysia, soy from Argentina and Brazil, and sunflower from Russia and Ukraine. The war has rattled global commodities markets and sent vegetable oil prices surging alongside crude. Retail edible oil prices rose by Re 1 to Rs 4 per kg in just one week. India’s palm oil imports fell 19% in March to a three-month low as price-wary refiners held back. This will tighten domestic availability in the coming months. Both oils singe the household budget.

The lived experience of inflation in healthcare, medicines, education, transportation, and house rents has been high for several years, as documented in a new book called Breakpoint. India’s recently revised CPI basket has a structural blind spot. It captures the rents paid by sitting tenants whose leases escalate by a formulaic 5-10% annually, rather than the market rents faced by new entrants. Brokers and tenants across cities routinely report double-digit rent increases even as official housing inflation remains subdued. The index is measuring the wrong price. The official thermometer is not reporting the correct temperature.

All of this is happening against the backdrop of stagnant real wages, especially in rural India. When everything costs more and wages do not keep pace, households cut nutrition, defer medical care, and pull children from private schools. The violent protests for wage hikes we are witnessing in Haryana’s Manesar and Noida’s industrial clusters are not merely labour disputes. They are inflation’s social manifestation.

In Manesar, factory workers boycotted work, clashed with police, and drew the government into a dramatic concession. The government announced a 35% hike in minimum wages for unskilled workers. It is barely enough. The protests are a damning verdict on years of inflation outpacing wage growth.

In Noida, workers in garment and hosiery factories resorted to stone pelting, arson, and vandalism. They, too, are asking for a raise in minimum wages. India has around 400 million internal migrant workers acutely sensitive to food and fuel costs. When a meal doubles in price and LPG becomes scarce, many simply return to their villages. “Once labour leaves, it is very difficult to get them back,” is a refrain from the India SME Forum. The threat to India’s manufacturing competitiveness – already strained by global supply chain disruptions – is real.

Reality beyond the indices

On the macro front, the rupee fell 10% against the dollar in the last fiscal year. The fall in March was sharp, and the exchange rate crossed 95. The RBI responded with a dramatic crackdown. It virtually banned domestic bank participation in offshore betting on the rupee-dollar rate. This is called the non-deliverable forward (NDF) market, which is technically outside the RBI’s regulatory ambit and operates in Singapore, London, or New York. It is an offshore $149 billion-a-day market that offers an opportunity to hedge against a falling rupee. It also signals to onshore people how the rupee is moving. While the sudden crackdown made the rupee bounce up, it is unclear whether this will last if the war continues. As such, the RBI’s intervention to prop up the rupee cost India $30.5 billion in precious foreign exchange reserves in March alone.

The RBI has expressed deep displeasure at banks using the offshore-onshore gap to profit from the rupee’s weakness. But as any careful observer will note, the offshore NDF market is a symptom, not the disease. The disease is India’s structural current account deficit, widened by high oil import bills. This is combined with portfolio outflows of $26 billion over two years and net FDI that has turned zero or negative. These are real economy vulnerabilities that no amount of derivative-market policing can cure.

This week, as the IMF and World Bank hold their spring meetings, global growth forecasts are being revised downward. The RBI has held the repo rate at 5.25% and projects inflation to average 4.6% in 2026-27. These are carefully calibrated projections. But they will be hard to defend if oil prices remain elevated, if the West Asia ceasefire breaks down, and if the monsoon disappoints – none of which can be dismissed as unlikely.

The Indian household does not read CPI press releases. It reads the price on the cooking oil tin, the gas cylinder bill, the school fee notice, and the medical invoice. And it is telling the RBI survey that prices are rising at more than twice the official rate. That is the voice that matters – and it is saying, clearly and urgently, that the singeing is far from over.

(The writer is an economist; Syndicate: The Billion Press)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.