Key facts
- India's inflation likely rose to 4.0% in May, up from 3.48% in April.
- Rising vegetable prices and higher fuel costs are the primary drivers of the inflation increase.
- Transport inflation is estimated to have jumped to 4.15% in May.
- Wholesale price inflation accelerated to 9.05% in May.
- The Reserve Bank of India kept key interest rates unchanged, citing benign underlying pressures but warranting vigilance.
India's inflation is projected to have risen to 4.0% in May, approaching the Reserve Bank of India's medium-term target, according to a Reuters poll of economists. This uptick is attributed to increased vegetable prices and higher fuel costs, with transport inflation estimated to have jumped significantly. Wholesale price inflation also saw an acceleration, suggesting that rising input costs are gradually feeding into consumer prices.
Despite these upward pressures, the central bank maintained its key interest rates, citing robust economic growth and benign underlying inflation. However, RBI Governor Sanjay Malhotra acknowledged the need for vigilance regarding potential second-round effects. The RBI has revised its inflation forecast for the current fiscal year upwards to 5.1% from 4.6%.
Economists noted that while headline inflation was subdued in April due to limited pass-through and lower gold prices, the impact of recent fuel price hikes and adverse weather conditions on food supply is expected to become more apparent in the May figures. Core inflation, excluding volatile food and fuel, is forecast to be around 3.80%.