Not so long ago, the Indian economy was described by the finance ministry and the central bank as being in a ‘Goldilocks’ scenario, which is characterized by low inflation and high growth. The primary driver was a sustained period of low and declining inflation, which incidentally also led to higher real economic growth even though nominal growth had been decelerating.

However, estimates of inflation in the last six months have placed a question mark on such claims.

Consumer price index (CPI) data released this month confirmed apprehensions of inflation trending higher. Overall inflation was reported at over 3.9% for May, with rural inflation at nearly 4.3% outpacing the 3.5% urban inflation rate. The trend in food inflation was worrying, with its rural measure almost at 4.9% and urban just short of 4.7%. In both, food inflation outpaced overall inflation.

Some of this was expected, given our supply disruptions amid the West Asia war, but inflation stayed under the Reserve Bank of India’s (RBI) 4% target. With the government passing on a limited rise in fuel prices, the transport sub-group saw only an inflation rate of just 1.75%.

However, estimates of the wholesale price index (WPI) released for May show significantly higher inflation at 9.7%, with a rising trend since April’s 8.3%. The WPI series, like other statistical indicators, has been updated to base year 2022-23. Unlike the CPI data, its highest sub-group inflation rate was that for fuel at 30.3%. Wholesale food inflation was estimated at 4.5% but showed a faster rise (from 3.1% in April) than CPI estimates.

However, what should worry policymakers is its sharp rise over the last six months. WPI inflation was a little over 1.7% in 2024-25, declining to 0.4% in 2025-26. Food inflation last fiscal year was -3.7%, a sharp drop from 7.5% the previous year. It was negative between June 2025 and January 2026, with the overall WPI reading staying negative from May 2025 to November 2025.

What the CPI and WPI data confirm is that, first, the period until December 2025 was one of sustained low inflation. Second, a rise in inflation, including for food, was taking place even before the West Asia war started. And third, the significant divergence between WPI and CPI inflation in the last two months suggests inflationary pressures building up at the retail level, which are likely to be visible in the coming months.

What is likely to be a challenge for the government is the anticipated increase in inflation as 2026-27 rolls on. While uncertainty over the West Asia war seems largely over, we still have to contend with supply shocks due to deficient monsoon rainfall amid a strengthening El Niño phenomenon.

As of 23 June, rainfall was deficient by 43% compared to the long-term average. This is among the highest for June. Further, a recovery in the remaining monsoon months of July, August and September is unlikely to close that deficit sufficiently, given forecasts of El Niño worsening.

The supply shocks from declining output will drive food inflation. An extended period of high temperature that is anticipated as a result of El Niño could hurt even the rabi (winter) agricultural crop, adding to price pressures.

Another driving factor is the rise in input costs. This is already visible in energy prices at the wholesale level that are likely to transmit to retail inflation. But input energy costs will also increase as farmers use more ground water for irrigation in the absence of adequate rainfall.

Lastly, fertilizer shortages and their price increases are also likely to add to input costs. The extent of this cost-push inflation will depend on the progress of monsoon rains.

The government’s challenge is not just to insulate India’s large population from a coming inflationary surge, but also ensure employment and growth. Given that inflationary pressures are being driven by food prices, monetary policies are unlikely to be of help.

What is required is to ensure adequate supply of essential food items. While imports may be necessary in some cases, any ad hoc policy changes in trade policy or imposition of restrictions on domestic and external trade would be counterproductive.

Fortunately, crop output has been high in the last two years. This helped the government enhance its buffer stocks, which could ease some of the supply pressures. But policymakers must also ensure income and livelihood support in rural regions. With economic activity weakening even as incomes face uncertainty, it is also a good time to strengthen the country’s employment guarantee programme.

The author is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi.

Not so long ago, the Indian economy was described by the finance ministry and the central bank as being in a ‘Goldilocks’ scenario, which is characterized by low inflation and high growth. The primary driver was a sustained period of low and declining inflation, which incidentally also led to higher real economic growth even though nominal growth had been decelerating.

However, estimates of inflation in the last six months have placed a question mark on such claims.

Consumer price index (CPI) data released this month confirmed apprehensions of inflation trending higher. Overall inflation was reported at over 3.9% for May, with rural inflation at nearly 4.3% outpacing the 3.5% urban inflation rate. The trend in food inflation was worrying, with its rural measure almost at 4.9% and urban just short of 4.7%. In both, food inflation outpaced overall inflation.

Some of this was expected, given our supply disruptions amid the West Asia war, but inflation stayed under the Reserve Bank of India’s (RBI) 4% target. With the government passing on a limited rise in fuel prices, the transport sub-group saw only an inflation rate of just 1.75%.

However, estimates of the wholesale price index (WPI) released for May show significantly higher inflation at 9.7%, with a rising trend since April’s 8.3%. The WPI series, like other statistical indicators, has been updated to base year 2022-23. Unlike the CPI data, its highest sub-group inflation rate was that for fuel at 30.3%. Wholesale food inflation was estimated at 4.5% but showed a faster rise (from 3.1% in April) than CPI estimates.

However, what should worry policymakers is its sharp rise over the last six months. WPI inflation was a little over 1.7% in 2024-25, declining to 0.4% in 2025-26. Food inflation last fiscal year was -3.7%, a sharp drop from 7.5% the previous year. It was negative between June 2025 and January 2026, with the overall WPI reading staying negative from May 2025 to November 2025.

What the CPI and WPI data confirm is that, first, the period until December 2025 was one of sustained low inflation. Second, a rise in inflation, including for food, was taking place even before the West Asia war started. And third, the significant divergence between WPI and CPI inflation in the last two months suggests inflationary pressures building up at the retail level, which are likely to be visible in the coming months.

What is likely to be a challenge for the government is the anticipated increase in inflation as 2026-27 rolls on. While uncertainty over the West Asia war seems largely over, we still have to contend with supply shocks due to deficient monsoon rainfall amid a strengthening El Niño phenomenon.

As of 23 June, rainfall was deficient by 43% compared to the long-term average. This is among the highest for June. Further, a recovery in the remaining monsoon months of July, August and September is unlikely to close that deficit sufficiently, given forecasts of El Niño worsening.

The supply shocks from declining output will drive food inflation. An extended period of high temperature that is anticipated as a result of El Niño could hurt even the rabi (winter) agricultural crop, adding to price pressures.

Another driving factor is the rise in input costs. This is already visible in energy prices at the wholesale level that are likely to transmit to retail inflation. But input energy costs will also increase as farmers use more ground water for irrigation in the absence of adequate rainfall.

Lastly, fertilizer shortages and their price increases are also likely to add to input costs. The extent of this cost-push inflation will depend on the progress of monsoon rains.

The government’s challenge is not just to insulate India’s large population from a coming inflationary surge, but also ensure employment and growth. Given that inflationary pressures are being driven by food prices, monetary policies are unlikely to be of help.

What is required is to ensure adequate supply of essential food items. While imports may be necessary in some cases, any ad hoc policy changes in trade policy or imposition of restrictions on domestic and external trade would be counterproductive.

Fortunately, crop output has been high in the last two years. This helped the government enhance its buffer stocks, which could ease some of the supply pressures. But policymakers must also ensure income and livelihood support in rural regions. With economic activity weakening even as incomes face uncertainty, it is also a good time to strengthen the country’s employment guarantee programme.

The author is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi.