India's headline consumer price inflation likely returned to the Reserve Bank of India's medium-term target of 4.0% in May, according to a Reuters poll of 38 economists conducted between June 3 and June 8. The expected uptick reflects a resurgence in vegetable prices and a notable pass-through from higher fuel costs to transport inflation.
Inflation had remained beneath the RBI's 4% benchmark for 15 straight months prior to the May estimate. The benign run has been disrupted by several developments that pushed consumer prices higher during the month. State-owned fuel retailers raised pump prices four times in May alone, feeding into transport costs, while food inflation rose from unusually low levels observed the previous year.
The Reuters survey put the year-on-year change in the consumer price index at 4.0% for May, up from 3.48% in April. Kanika Pasricha, chief economic adviser at Union Bank of India, said: "May '26 CPI likely crossed the 4% threshold ... driven primarily by vegetables and transport inflation." She added that sustained high temperatures in many regions and constraints stemming from the war involving the U.S. and Israel against Iran have hurt commodity supplies, helping to push vegetable prices up during the summer months. Pasricha also pointed to a severe heatwave that supported month-on-month gains across food categories.
Union Bank of India estimated that transport inflation likely rose sharply to 4.15% in May from -0.01% in April. That jump is estimated to have lifted transport's contribution to headline inflation to 36 basis points from nearly zero, underscoring the impact of higher fuel prices transmitted through to consumer transport costs.
Wholesale inflation has been moving in the opposite direction of the earlier subdued consumer prints. While headline inflation for April was well below expectations, wholesale price inflation hit a 3-1/2-year high of 8.3% in April. The poll showed wholesale inflation likely climbed further to 9.05% in May. Economists surveyed said these elevated input costs are expected to filter into consumer prices over time.
Reflecting the evolving outlook, the central bank has raised its inflation forecast for the fiscal year to 5.1%, up from an earlier projection of 4.6%. Despite the rise in headline inflation, the RBI last week left its key policy rates unchanged, noting that inflationary pressures at the core remained benign even as second-round effects required vigilance. RBI Governor Sanjay Malhotra described underlying inflation pressures as benign while flagging the need to watch for knock-on effects.
Sakshi Gupta, principal economist at HDFC Bank, said the effects of the conflict should begin to show up in the May inflation print and noted that pass-through from wholesale to consumer prices typically occurs with a lag. She also observed that recent inflation readings had been lower than some forecasts partly because pass-through had been limited so far and because lower gold prices had weighed on the overall inflation figure.
India's relatively subdued consumer inflation in recent months has also benefited from softer-than-usual increases in food prices. However, several economists warned that this support may be weakening as rising temperatures begin to lift vegetable prices. The India Meteorological Department has cautioned that this year's monsoon could be the weakest in 11 years, a development that could further complicate the supply-side outlook for agricultural goods.
Core inflation, which excludes volatile food and fuel components, is expected to be 3.80% in May. India does not publish an official core inflation series.
Key data points from the poll and official commentary:
- Poll dates and sample: June 3-8; 38 economists surveyed.
- May CPI (year-on-year): likely 4.0%, up from 3.48% in April.
- Transport inflation: estimated rise to 4.15% in May from -0.01% in April; contribution to headline inflation up to 36 basis points.
- Wholesale price inflation: 8.3% in April; poll estimate of 9.05% for May.
- RBI revised fiscal-year inflation forecast to 5.1% from 4.6%.
- Expected core inflation for May: 3.80%; India does not publish official core inflation data.