India’s retail inflation likely rose to 4.1% in May from 3.5% in April, slightly above the Reserve Bank of India’s 4% medium-term target, as prices of key food items and fuel products climbed during the month, according to the median estimate of 16 economists polled by Mint.
Economists expect Consumer Price Index (CPI) inflation to range between 3.9% and 4.4% in May. The median estimate, if realized, would mark the first breach of the central bank's midpoint target under the revised CPI series with 2024 as the base year.
The official data is scheduled for release on 12 June.
Food is expected to be the main driver of inflation, with Radhika Rao, economist at DBS Bank, pointing to higher prices of perishables including vegetables, edible oils, cereals, pulses and milk. Heatwave conditions in parts of the country have also added to price pressures.
Food items account for nearly 35% of the CPI basket, with vegetables alone carrying about a 7% weight, underscoring their influence on headline inflation.
Economists also flagged early effects of higher fuel prices, alongside costlier commercial liquified petroleum gas (LPG) and increased import duties on precious metals, as contributors to May inflation. Petrol and diesel prices were raised four times from mid-May, resulting in a cumulative increase of about ₹7.5 per litre by the end of the month.
Aditi Nayar, chief economist at Icra Ltd, said the full impact of recent fuel price hikes would be felt in the June inflation reading.
At its June monetary policy meeting, the RBI estimated that the fuel price hikes could add around 36 basis points to headline inflation, with second-round effects likely to spill over into broader consumer prices. The central bank projected CPI inflation at 4.2% in the first quarter of FY27, rising to 5.1% in Q2 and 5.9% in Q3, before easing to 5.4% in the final quarter.
Even so, the central bank's Monetary Policy Committee left the repo rate unchanged at 5.25% in June, signalling comfort with the outlook while flagging geopolitical risks. Economists, however, cautioned that war-related risks, along with El Niño-driven weather patterns, could test that comfort.
"Downstream industries are likely to gradually pass on higher input costs to consumers over the coming quarter. Together with further fuel price adjustments, this could intensify emerging inflationary pressures and potentially pave the way for monetary tightening should geopolitical risks remain elevated," said DBS Bank’s Rao.