Key facts
- India's May inflation is expected to have risen to 4.0%.
- Increased vegetable and fuel costs are driving the inflation rise.
- The Reserve Bank of India maintained its key interest rates.
- The central bank cited benign underlying inflation pressures.
- Wholesale price inflation accelerated to a 3-1/2-year high of 8.3% in April and is expected to rise further.
India's inflation rate is projected to have risen to 4.0% in May, reaching the Reserve Bank of India's medium-term target, according to a Reuters poll of economists. This increase is primarily driven by a pickup in vegetable prices and higher fuel costs, with transport inflation estimated to have jumped significantly. Wholesale price inflation has also accelerated, with expectations that these higher input costs will gradually feed into consumer prices.
Despite the upward trend in inflation, the Reserve Bank of India kept its key interest rates unchanged last week, as anticipated. RBI Governor Sanjay Malhotra stated that underlying inflation pressures remain benign, although vigilance is necessary due to potential second-round effects. The central bank has raised its inflation forecast for the current fiscal year to 5.1% from 4.6%.