India's annual inflation is set to exceed 4.5% in 2026, with the Economist Intelligence Unit forecasting 4.8% for the full year — and the risks are skewed firmly to the upside.
Three forces are converging at once. The closure of the Strait of Hormuz has sent oil prices surging past $110 a barrel, hitting India particularly hard: the country spends roughly 3% of GDP on energy imports. The rupee has already shed nearly 10% of its value against the dollar over the past fiscal year, making every imported barrel even pricier. And March inflation, while still at 3.4%, is widely seen as a temporary lull before the storm.
Analysts at Axis Bank estimate that if oil stays near $100 for a full year, India's current-account deficit could widen by $80bn — adding further pressure on the currency and, in turn, on prices.
The Reserve Bank of India has already reversed course on currency hedging rules and burned through $25bn in reserves. But with global energy markets in turmoil and no resolution in sight in the Gulf, monetary tools alone may not be enough.
The verdict: 4.5% is no longer a ceiling. It's the floor.
Sources: The Economist, EIU; Axis Bank Research