Retail inflation in India increased slightly in May, the Consumer Price Index (CPI)-based inflation rate coming out at 3.93% against 3.48% in April, according to the Ministry of Statistics and Programme Implementation (MoSPI) provisional data. The rise was mainly due to the price rise of food items despite the inflation staying slightly below the Reserve Bank of India's (RBI) medium-term target of 4%.

Key Highlights

• India’s retail inflation rose to 3.93% in May, driven by higher food prices.
• Food inflation climbed to 4.78%, while RBI monitors energy and monsoon risks.

The food inflation rate in the Consumer Food Price Index (CFPI) rose to 4.78% in May from 4.20% in April, driven mainly by further increase in prices of vegetables and other food stuffs. Housing inflation edged up slightly higher to 2.12% in April, the same level as the previous month.

The major items that added the most to the inflation rate in the month were vegetables (tomatoes and ginger), jewellery (gold, silver, diamond and platinum) and beverages. However, potato, pea, cumin, motor vehicles, motorcycles and scooter prices saw no significant rise.

The most recent inflation reading was fairly consistent with market forecasts. Economists had forecast that retail inflation would be in the range of 3.9% to 4.4% with a median of 4%. The May figure is the highest since the CPI series was revised with 2024 as the base year, which was first introduced this year.

Also Read: India's Retail Inflation Hits 13-Month High of 3.48% in April

Rising Energy Costs and Monsoon Risks in Focus

Higher energy costs and uncertainties surrounding weather could push up inflationary pressures in the near future, economists have said. Continuous geopolitical stress in West Asia has started to push up fuel and transportation prices, and worries about El Niño will affect monsoon performance and yields.

Experts say the pass-through of the rise in the cost of crude oil and raw materials is slowly working its way through to consumer prices. Experts forecast that inflation will keep rising during the year, especially if oil prices stay high and there are more food shortages.

In the recent revision of the inflation target for FY27, the RBI has increased its estimate from 4.6% to 5.1% due to the possibility of weather-related disruptions and higher energy costs. The central bank, however, did not change the benchmark repo rate at the latest monetary policy meeting, keeping its stance cautious while keeping a watch on the developments in the domestic and global scenario.

However, the inflation surge puts some space for policy makers to consider the effects of geo-political events, fuel prices and monsoons before more policy changes are made, as the figures are not outside the RBI's comfort zone of 2%-6%.