Domestic prices in India have been cooling in recent months

2023 inflation will likely reach 6.3% YOY because of potential increases in food, fuel, and imported inflation

While India’s recent inflation figures are on a downtrend, broad inflation levels will remain elevated due to global pressures over the next 9–12 months. The short-term ease in prices will provide some temporary relief on margin pressure while offering firms some space to think through their pricing architecture and priorities on protecting margins or market share. Meanwhile, firms should expect elevated levels of inflation to result in trading-down behavior by consumers and customers, making it imperative to carefully segment customers and the product portfolio by price.


After the immediate surge in producer and consumer prices, India’s inflation growth has slowed slightly over the past six months compared to several other Asian and global markets where pricing pressures remained exacerbated to varying degrees.

Consumer price inflation eased from 7.8% YOY in April to 6.8% YOY in October, while producer prices fell even more swiftly, from 15.1% YOY to 8.9% YOY during the same period. Domestic dynamics have contributed to easing pricing in two key ways:

  • Food inflation: India is almost completely self-sufficient in its consumption of staple grains, such as wheat and rice. As a result, while the recent food supply crunch has pushed up prices across major importing countries, the same impact has not been felt in India.
  • Fuel inflation: India benefits from importing discounted crude oil from Russia, a country that has gone from being a small crude oil supplier for India to its largest, as of October 2022, keeping a price ceiling on the price of domestic crude oil.

 Our View

Domestic factors will continue to prevent extreme inflation levels in India. However, India’s inflation levels will also be determined by global dynamics. Global prices of nearly every key commodity, including oil, natural gas, copper, agricultural commodities, and shipping are expected to remain elevated (at current, historically high levels) in 2023 due to supply challenges. Additionally, while factors described above have protected India from extreme food and fuel inflation, additional headwinds are likely to increase pricing pressures:

  • Food inflation: Global fertilizer prices have surged due to high prices of their key raw material, natural gas. As India imports about 10% of the world’s total fertilizer exports, high costs will push up prices of food production domestically.
  • Fuel inflation: While India is likely to continue importing crude oil from Russia, upcoming sanctions by the US and EU on transporters and insurers involved in crude oil trade with Russia could have a secondary impact on the extent to which India is able to continue its oil imports from Russia at minimal additional cost.
  • Imported inflation: The expected weakening of the Indian rupee against the USD through most of 2023 will result in higher costs of imports, exacerbating domestic inflationary pressures.

As a result of these dynamics, we have revised our 2023 inflation forecast up from 5.8% YOY to 6.3% YOY and maintained the 2022 forecast at 6.9% YOY.

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