India’s retail inflation rose to a 16-month high of 3.93 per cent in May, compared to 3.48 per cent in April, fuelled by rising food, energy, and precious metal costs.
Government data released on Friday revealed a steep 43 per cent increase in the headline rate over the last five months. Though still marginally below the central bank’s 4 per cent medium-term target, analysts anticipate upward pressure ahead due to below-normal monsoon projections and geopolitical frictions in West Asia.
Precious metals, vegetables among key inflation drivers
Precious metal jewellery, tomato, ginger, raisin (kishmish), and monacca were the five items with the highest inflation. On the other hand, potato, peas, motor car and jeep, cumin (jeera) and ‘motor cycle and scooter’ were the top five items with low inflation at the All India combined level in May 2026.
Economists say the May print was lower than expected. “While CPI inflation came in lower than expected, it rose to its highest level in 16 months. A sharp increase in transport inflation and higher food inflation were the primary drivers of headline inflation during the month. Food & beverages inflation increased as the favourable base effect from last year waned and due to a seasonal uptick,” said Rajni Sinha, Chief Economist with CareEdge, while adding that heatwaves across several regions also adversely impacted the supply of several food items, pushing up the inflationary pressures.
Adding to this, Debopam Chaudhuri, Chief Economist at Piramal Group, said that retail consumers remained largely insulated in May from the sharp rise in wholesale inflation, particularly across petrochemicals and hydrocarbon-linked products. However, “However, categories such as restaurants, cooking fuel and transportation are already witnessing a sequential pick-up in price pressures,” he said.
Monsoon and geopolitical risks may push inflation higher
The expectation is that the rate will move higher. According to Madan Sabnavis, Chief Economist at Bank of Baroda, inflation is expected to move higher at different paces in the coming months, depending on the transmission of higher energy prices across different products. And subsequently, The monsoon impact will be subsequently reflected in food product prices. “The monsoon is already delayed, and advice given to farmers was to wait for the rains to arrive before sowing their seeds for the relevant crops,” he said.
Megha Arora, Director at India Ratings & Research, believes said headline inflation is likely to further rise to 4.5 per cent in June, thereby surpassing the RBI’s benchmark inflation rate of 4 per cent, which is on expected lines but will remain within its upper tolerance band of 6 per cent. “Geopolitical tensions and El Nino conditions continue to remain upside risks to inflation,” she said.
Rate hike expectations emerge amid inflation concerns
Along with the headline increase, there is also a sense that the policy interest rate may rise at the October review. Market anticipation is that the central bank may hike the policy repo rate during its October review. “The sub-4 per cent headline and core inflation points towards comfortable trends in the near term. While softening crude oil prices and the cap on the weakening Rupee remain a tailwind, we continue to monitor the impact of adverse monsoons on food inflation. For now, we continue to expect 50bps of rate hike beginning in October,” said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.