US-Iran Conflict Heightens Inflation Risks, Potential Implications for Consumer Expenses and Financial Markets

India's Inflation Dilemma: Energy Prices and Global Conflict Pose Risks

India's retail inflation has remained within the Reserve Bank of India's (RBI) 2%-6% tolerance band since October 2024. However, the benign inflation dynamics are at risk due to elevated energy prices. In April 2026, the Consumer Price Index (CPI)-based inflation stood at 3.48%, a 13-month high, largely due to a rise in prices of food and beverages, clothing, housing, and utilities amid rising energy costs driven by the West Asia conflict.

India's wholesale inflation surged to a 42-month high of 8.3% in April from 3.88% in March. The sharp rise in wholesale inflation was primarily due to higher fuel prices. The impact of the US-Iran war and the blockade of the Strait of Hormuz has slowly started to reflect in inflation prints. A sharp jump in wholesale inflation can eventually lead to a gradual increase in retail inflation as merchants and traders may feel forced to pass on higher prices to consumers.

The Impact of Energy Prices on Inflation

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If energy supply remains disrupted for a prolonged period, the government may decide to further increase oil and gas prices, as oil marketing companies (OMCs) cannot sustain huge losses for much longer. An increase in energy prices has a ripple effect on overall inflationary trends because energy is required for the production and transportation of almost all consumption goods.

Forecasting Inflation for FY27

According to a Moneycontrol report, the finance ministry expects CPI-based inflation, or retail inflation, to average in the range of 5.5% to 6% in FY27. However, the worst part about the current inflation estimates is that they still cannot capture the full impact of elevated oil prices, as there is no clarity when the West Asian conflict will be finally settled, and the Strait of Hormuz will be fully open.

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The Consequences of Higher Inflation

Higher inflation may erode the purchasing power of common citizens as the costs of food, transportation, and even education and medical care may rise. This could lead to cutting on luxury expenses such as eating out or holidaying. Higher inflation may prompt monetary tightening, leading to higher interest rates on home and other loans. This could increase the EMI burden. For investors, the situation is also bad, as higher inflation increases input costs, eroding companies' profitability and leading to modest market returns that may be further lower, adjusted for inflation.

Mitigating the Effects of Inflation

Varun Fatehpuria, Founder and CEO at Daulat Wealth Management, underscored that inflation often hits the middle class harder than any other group because a disproportionate share of their spending goes towards essentials, including food, fuel, transport, and housing. This leaves them with little discretionary spending, which thereby impacts the economy. For their long-term goals, they should make sure the savings aren't sitting idle in instruments like FDs that earn less than inflation after tax.

Shashank Udupa, a SEBI-registered research analyst and Fund Manager at Smallcase, said that in a rising inflationary environment, one must try to reduce their lifestyle spends and EMIs as quickly as possible. Decrease expenses and increase savings in a diversified basket such as SIP, bonds, and gold. Gold is a very effective hedge against inflation. Having some investments in USD would also help fight your portfolio against inflation.

Pravesh Gour, a senior analyst at Swastika Investmart, also emphasizes that in a higher inflationary environment, financial discipline becomes crucial. From an investment perspective, Gour said traditional low-yield savings instruments alone may not be sufficient to beat inflation over the long term. Diversified investments across equities, gold, and inflation-resilient assets can help preserve purchasing power. Systematic investment plans (SIPs) may also help individuals benefit from long-term wealth creation despite short-term volatility.