NEW DELHI: India’s retail inflation rate in May accelerated to 3.93 per cent from 3.48 per cent in April, nearing the Reserve Bank of India’s (RBI’s) 4 per cent target, as food and transport costs edged higher, the data released by the National Statistics Office (NSO) on Friday showed.
The May reading — the fifth print under the updated 2024 consumer price index (CPI) series — is estimated to be a 16-month high when compared with the back series data released by the NSO.
The last time the rate exceeded the May level was in January 2025, when it stood at 4.06 per cent.
The food inflation rate, measured by the consumer food price index (CFPI), rose to 4.78 per cent in May from 4.2 per cent in April, driven by sharp price increases in items such as coconut (44.36 per cent), tomatoes (48.43 per cent), and ginger (32.49 per cent).
Experts say a subnormal and delayed southwest monsoon is likely to push food prices even higher.
This marks the third full month of data since the war broke out in West Asia, disrupting global fuel supplies and shooting up prices higher.
“Rising input costs for producers are now increasingly feeding into consumer prices. The impact of the conflict, which has now entered its fourth month in June, is starting to percolate into household budgets,” said Dipti Deshpande, principal economist, Crisil.
According to Megha Arora, director at India Ratings & Research (Ind-Ra), the May numbers reflect the impact of the pass-through of prices of crude oil to consumers from the middle of the month.
The revised series recalibrates items earlier clubbed into six groups to 12 divisions. Notably, the transport division escaped deflationary territory and recorded a rise of 1.75 per cent during the month compared to -0.01 per cent the preceding month.
“While the overall fuel inflation rate remained muted due to the base effect, the impact of petrol and diesel price increases was visible in transport prices,” Arora said.
Personal care and social protection led with 18.46 per cent, followed by restaurant and accommodation services, which recorded 5.75 per cent.
“This is a direct impact of energy prices going up as well as food raw materials, which have caused them to increase prices,” said Madan Sabnavis, chief economist, Bank of Baroda, explaining the price inflation in restaurant services.
Retail prices increased in both rural and urban India over the previous month. While the CPI (Rural) rose to 4.25 per cent in May from 3.74 per cent in April, urban inflation edged up to 3.53 per cent from 3.16 per cent.
Deshpande noted that the non-food inflation rate edged up to 3.5 per cent in May from 3.1 per cent in April. She estimated that food prices contributed around 170 basis points (bps) to the headline inflation rate, while the contribution from non-food items was higher at about 230 bps.
“The core inflation rate is also showing signs of pressure from higher energy and other input costs, although goods and services tax rationalisation may offer a partial near-term offset,” she added.
In its latest review, which concluded on June 5, the Monetary Policy Committee (MPC) of the RBI upgraded its inflation forecast to 5.1 per cent for FY27 from the earlier estimate of 4.6 per cent, citing a partial pass-through of energy prices to domestic pump prices, a rise in input costs, and expectations of a monsoon lower than normal.
Bank of Baroda expects the inflation rate for the year (FY27) to range between 5.2 per cent and 5.5 per cent, while Crisil anticipates it will rise to an average of 5.1 per cent.
However, economists don’t expect a rate increase by the RBI anytime soon.
Debopam Chaudhuri, chief economist, Piramal group, expects the retail inflation rate to move above 5 per cent in June 2026.
“That said, conventional monetary tightening may not be the most appropriate response at a time when economic growth is expected to soften and government borrowing requirements are set to rise, potentially adding to interest payment burdens. As a result, I expect the first policy rate increase only in February,” he added.
Source: Business Standard
