India’s retail inflation edged up to 3.93% in May, against 3.48% in April, mainly due to rising food and fuel costs, according to government data released on Friday. The figure remained within the Reserve Bank of India’s medium-term inflation target range.
The May inflation rate is the highest recorded under the revised consumer price index series introduced in January this year. The new series uses an updated basket of goods and a new base year to measure price changes.
Food inflation continued to move higher in May. It stood at 4.78%, up from 4.20% in April, showing that prices of food items are rising faster than they were a month earlier.
The increase comes after food inflation had remained relatively low during the previous year.
Fuel prices also contributed to the rise in inflation. State-owned fuel retailers increased fuel prices four times during May, leading to higher transportation costs.
As a result, transport inflation climbed to 1.75% in May, compared with a decline of 0.01% in April. The rise reflects the impact of higher fuel prices being passed on to consumers.
Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank said, “The sub-4% headline and core inflation points towards comfortable trends in the near term. While the softening crude oil prices and 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 a 50 bps rate hike beginning in October.”
Higher crude oil prices and concerns over a weak monsoon have added to inflation worries. In response, the Reserve Bank of India has raised its inflation forecast for the current financial year to 5.1%, up from its earlier estimate of 4.6%.
The central bank has also flagged risks to the rupee and the country’s current account deficit as higher oil prices continue to put pressure on the economy.