How Has Inflation Developed in India?

Despite a positive GDP growth outlook for India, which is now forecast at seven percent for its fiscal year 2024/2025 per the most recent economic report by the World Bank, inflation for urban consumers remained high in the fiscal year ending in March 2024, reaching 5.1 percent on annualized average. As our chart based on data aggregated by the Reserve Bank of India shows, two important subindices have been on a downward trajectory in the past year as well.

For example, core inflation, defined as the overall consumer price index excluding food and fuel, in urban India stood at 4.2 percent for the most recent fiscal year. Amid the coronavirus pandemic, this indicator rose sharply to between 5.4 and 5.9 percent. The biggest price driver was the cost of fuel and energy, even though India profited from the global sanctions on Russian oil and gas exports put in place after the latter's invasion of Ukraine, increasing its import volumes from Russia by 111 percent between 2022 and 2023.

Urban housing price increases, on the other hand, rapidly decelerated since April 2019, dropping from a 6.7 percent increase between April 2018 and March 2019 to an annualized average of 3.3 percent for the fiscal year ending March 2021. However, this development is forecast to reverse in the coming years. According to a recent Reuters poll of housing experts, demand for luxury homes significantly outpacing the supply of affordable housing in India will result in housing price increases of 7.8 percent in the current fiscal year, compared to last year's rise of 4.3 percent.