India’s retail inflation firmed up to 3.93% in May from 3.48% in the previous month, according to provisional data released by the ministry of statistics and programme implementation on Friday.
Food inflation, a key constituent of the country’s Consumer Price Index, stood at 4.78% under the new series in May, up from 4.20% in April and 3.87% in March. Housing inflation was at 2.12% last month against 2.15% in April, 2.11% in March and 2.11% in February.
Silver, gold, diamond and platinum jewellery as well as vegetables such as tomato, ginger and raisin were among the items that had the strongest inflationary pressure. Potato, peas, cumin, motor cars, jeep, motorcycles and scooters remained the top items with low all-India inflation, the data showed.
The median estimate in a Mint poll of 16 economists was for a 4.1% increase in retail prices, slightly above the Reserve Bank of India’s 4% mid-range target. The poll estimates ranged from 3.9% to 4.4%.
The latest data can’t be compared with the year-ago period due to the reset of the Consumer Price Index (CPI) basket in January. Retail inflation was recorded at a revised 2.74% in January, marking the debut for the new series with 2024 as the base year. It stood at 3.21% in February, 3.4% in March and 3.48% in April.
Prices of food and beverages, clothing, housing and utilities may harden amid rising energy costs linked to the West Asia conflict. Inflation is also likely to be driven by a fading base effect and rising prices in non-food segments.
“The pass-through of higher energy and raw material costs to consumers has started to push headline inflation higher and the risks to the inflation trajectory have intensified with the prospect of a weak monsoon,” said Vikram Chhabra, a senior economist at 360 ONE Asset.
Chhabra said he expects inflation to approach 6%, the upper end of the RBI’s tolerance band, by the end of this calendar year.
“This complicates the RBI’s policy choices. That said, with expectations of a resolution in West Asia gaining ground and crude below $90, we expect the RBI to stay on pause in the near term,” he added.
“Inflation is expected to move upwards at a differential pace in the coming months, depending on transmission of higher energy prices to different products. And subsequently, the monsoon impact will get reflected in food product prices,” said Madan Sabnavis, chief economist at Bank of Baroda. “The inflation numbers are interesting as the higher inflation number of 3.9% against 3.5% in April was still driven by food prices with inflation being 4.8%.”
Rajeev Sharan, head of research at Brickwork Ratings, said the rise in food inflation to 4.78% underscores persistent price pressures in perishables, particularly tomatoes, ginger and other vegetables.
“Core inflation remained contained at around 3.7%, indicating that the rise is still being driven more by food and imported energy costs than by broad-based demand pressures… Overall, May’s print reflects a gentle re-acceleration in inflation, shaped by both weather-related food volatility and imported cost pressures, even as core categories continue to provide an anchor,” he added.
Though it remains below the RBI’s 2%-6% tolerance level, a further rise in prices could push the central bank to increase policy rates that could suppress growth in the coming quarters. In the June policy, the RBI revised its inflation projection for FY27 upwards to 5.1% from 4.6% earlier, citing the twin risks arising from expected below-normal monsoon amid El Niño conditions and elevated energy prices.
The RBI kept interest rates unchanged on 5 June, striking a cautious tone as it monitors the impact of surging oil prices on the economy and pledges to curb any excessive currency moves. The central bank’s six-member Monetary Policy Committee voted unanimously to keep the benchmark repo rate at 5.25%, retaining a neutral policy stand and indicating that it is in a wait-and-watch mode.
War impact
The conflict in West Asia, which started on 28 February, has weighed on India’s economy, prompting a slump in the currency and raising stagflation risks. However, GDP growth in Q4 remained firm at 7.8%, taking the FY26 growth rate to 7.7%.
Food items account for a large share of the CPI, meaning sharp swings in their prices often dominate headline inflation, pushing it up or down irrespective of broader price trends. From June 2025, food inflation turned negative, with prices consistently lower than a year earlier. This sharply pulled down headline CPI inflation, which fell to an all-time low of 0.25% in October, alongside record-low food inflation of -5.02%.
Inflation was the highest in most south Indian states including Andhra Pradesh, Telangana, Tamil Nadu, Karnataka and Kerala in May, while it was among the lowest in Delhi, Mizoram and Tripura.
Personal care, social protection and miscellaneous goods and services as a group had the highest inflationary effect with a May number of 18.46%. Higher oil prices had an impact on transport services for goods, which saw higher inflation of 7.63% in May.
The new index, which uses 2024 as its base year, is built on spending patterns captured in the 2023-24 Household Consumption Expenditure Survey. The recalibrated weights for index components in the new series pushed up headline inflation readings modestly, with the share of core items rising about 10 percentage points and volatile food prices getting a smaller say.
The new CPI series also raises housing’s share, reshaping inflation measurement, easing volatility and altering how the RBI interprets headline inflation trends.
As things stand, the new CPI series provides policymakers with a more up-to-date basis for assessing real incomes, consumption trends and purchasing power. A lower weight for the otherwise-volatile group of food and beverages may make headline inflation less volatile.