The big squeeze

The Reserve Bank of India’s Inflation Expectations Survey of Households (March 2026 round) shows perceived inflation to be 7.2 per cent. This is more than double the official Consumer Price Index (CPI)-based reading of 3.2 per cent for February.

The CPI was revamped recently to better represent true inflation. The RBI survey also shows households expect prices to rise 8.5 per cent over the next three months and 8.8 per cent over the year. 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, which was at $115 per barrel in March, driven by the West Asia conflict. Likewise, transport and power costs are up, as are prices of practically all manufactured goods.

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. If the conflict heats up again, the price of crude oil will surge and so will inflation.

The second oil is what Indians use for cooking. India imports nearly 90 per cent of its edible oils — palm from Indonesia and Malaysia, soya from Argentina and Brazil, sunflower from Russia and Ukraine. The West Asia crisis has rattled global commodities markets and sent vegetable oil prices surging alongside crude.

Retail edible oil prices rose by Rs 1–4 per kg in just one week. India’s palm oil imports fell 19 per cent in March to a three-month low as price-wary refiners held back. This will tighten domestic availability in the months ahead. Both oils singe the household budget.

The lived experience of inflation — as seen in healthcare, education, transportation, house rents — has been high for several years. Breakpoint: The Crisis of the Middle Class and the Future of Work, a 2026 book by Saurabh Mukherjea, Nandita Rajhansa and Sapana Bhavsar, examines its impact on the Indian middle class.

India’s recently revised CPI basket still has a structural blind spot. It captures the rents paid by sitting tenants, whose lease rentals escalate annually by a formulaic 5–10 per cent, rather than the rents new entrants have to pay. Brokers and tenants across Indian 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 taking the temperature at the wrong site.

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 in Haryana’s Manesar and Noida’s industrial clusters are not just labour disputes, they are a social manifestation of inflation.

In Manesar, factory workers boycotted work, clashed with police and drew the government into a dramatic concession. The government announced a 35 per cent hike in minimum wages for unskilled workers. Not nearly enough because inflation has outpaced wage growth for years.

In Noida, workers in garment and hosiery factories pelted stones, turned to arson and vandalism. They too are asking for an increase in minimum wages. India has around 400 million internal migrant workers, a demographic that is acutely sensitive to food and fuel costs. When the price of a meal doubles and LPG becomes scarce, many just return to their villages.

And as the India SME Forum iterates: ‘Once labour leaves, it is very difficult to get them back’. The threat to India’s manufacturing competitiveness, already under pressure from global supply chain disruptions, is real.

On the macro front, the rupee fell 10 per cent against the dollar in the last fiscal year. The fall in March was sharp, and the exchange rate crossed 95. The RBI response was a crackdown, practically banning domestic bank participation in offshore betting in the rupee-dollar rate. This is the non-deliverable forward (NDF) market, which is technically outside the regulatory ambit of the RBI.

This offshore market, worth $149 billion a day, offers opportunities to hedge against a falling rupee. It is also a signal for onshore people to gauge which way the rupee will move. While the RBI’s sudden crackdown made the rupee bounce, it is not clear whether this will last if the war with Iran continues. In March alone, the RBI’s interventions to prop up the rupee cost India $30.5 billion in precious foreign exchange reserves.

The RBI has expressed deep displeasure with 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 current account deficit, which high oil import bills have widened, combined with portfolio outflows of $26 billion over two years and net FDI that has turned negative. These are real economy vulnerabilities that no amount of policing of the derivatives market can fix.

At the IMF and World Bank spring meetings (13–18 April), global growth forecasts were revised downward. The RBI has held the repo rate at 5.25 per cent and projects inflation to average 4.6 per cent in 2026–27. These are carefully calibrated projections that will be hard to defend if oil prices stay high, if the West Asia ceasefire breaks down and if the monsoon disappoints — none of which can be dismissed as unlikely.

A typical Indian household may not engage with CPI press releases but it knows the price of cooking oil and LPG refills, it is sensitive to increases in school fees and medical bills. And it is telling the RBI survey that prices are rising at more than double the official rate.

Ajit Ranade is a noted economist. More of his writing may be found here

Article courtesy: The Billion Press