Data released on Friday showed consumer inflation rising from 3.48% in April but it stayed short of a Reuters projection of 4%. May’s retail inflation print marked the highest inflation reading under India’s revamped CPI series launched in January this year with a revised consumption basket and new base year.
The RBI has a mandate to retain its retail inflation target at 4% (within a 2%–6% band) for the five-year period from 1st April 2026 to 31st March 2031.
Inflation has stayed below the Reserve Bank of India’s 4% target for 16 straight months now, offering policymakers room to support growth. That period of subdued price pressures may be coming to an end, however, after state-run fuel retailers raised prices four times in May, lifting transport costs, while food inflation continued to edge higher from last year’s low base.
“While a build-up in price pressures is being watched closely against the backdrop of the ongoing West Asia conflict, India’s inflation is at still below the mid-range of the 2-6% target, and thereby less of an immediate policy concern. This is consistent with the central bank’s view that current inflation readings remain manageable. However, policymakers continue to closely monitor upcoming inflation prints as higher input costs gradually filter through from downstream industries to consumers, weather-related risks unfold, and the progress of the monsoon season becomes clearer,” said Radhika Rao, Senior Economist & Executive Director, DBS Bank.
The RBI during its monetary policy meeting last week had raised its FY27 inflation forecast, signalling mounting price pressures from higher food costs and a recent pickup in consumer inflation amid the escalating conflict in West Asia. The central bank now expects consumer price inflation to average 5.1% in FY27, up from the 4.6% projection in its April policy review.
India’s central bank kept interest rates on hold for a second straight meeting on June 5, retaining the repo rate at 5.25% and maintaining a neutral policy stance as mounting risks from higher oil prices, currency weakness and monsoon uncertainty complicated the inflation outlook.Retail food inflation rose to 4.78% in May from 4.20% in April, with rural food inflation accelerating faster than urban areas.
Potato prices contracted 23.71% in May as against a 23.66% plunge in April. Tomato prices surged 48.43%, quickening from 35.26% year-on-year jump in April.
Prices of electricity, gas and other fuels quickened to 0.81% in May from 0.69% rise in April.
Transport inflation was at 1.75% in May and transport services for goods inflation was at 7.63%.
“The sub-4% headline and core inflation points towards comfortable trends in the near term. While the softening crude oil prices and cap on weakening Rupee remain a tailwind we continue to monitor the impact of adverse monsoons on food inflation. For now, we continue to expect 50bps of rate hike beginning in October,” said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.
A sustained rise in energy prices could widen India’s current-account deficit, weigh on the rupee and add to inflationary pressures in the world’s third-largest oil importer. A below-normal monsoon, meanwhile, risks lifting food prices later this year, complicating the inflation outlook.
The numbers are provisional and can be revised later.