India's inflation likely climbed to the Reserve Bank of India's 4% target in May, reversing a 15-month streak of below-target readings, as rising vegetable prices and increased fuel costs drove consumer prices higher, according to a Reuters poll of 38 economists.
The poll, conducted June 3-8, forecast the annual change in the consumer price index (CPI) rose to 4.0% in May from 3.48% in April. The uptick marks a shift from the previous 15 months of below-target inflation, and economists anticipate further upward pressure due to elevated wholesale prices and potential monsoon impacts, the source reported.
Inflation Returns to RBI Target
Inflation has remained below the RBI's 4% target for 15 consecutive months. However, state-owned fuel retailers raised fuel prices four times in May alone, pushing up transport costs. Food inflation continued to rise from last year's low levels, the source noted.
Despite the uptick, inflation remains within the RBI's tolerance band. The central bank kept key interest rates unchanged last week, as expected. RBI Governor Sanjay Malhotra said underlying inflation pressures remained benign, although second-round effects warranted vigilance, the source reported.
Drivers: Vegetables and Transport
Kanika Pasricha, chief economic adviser at Union Bank of India, commented: 'May '26 CPI likely crossed the 4% threshold ... driven primarily by vegetables and transport inflation.' Union Bank of India estimated transport inflation likely jumped to 4.15% in May from -0.01% in April, lifting its contribution to headline inflation to 36 basis points from nearly zero, reflecting the pass-through of higher fuel prices.
Persistent elevated temperatures and war-led constraints adversely impacted the supply of commodities, the source reported. Severe heat waves have pushed up vegetable prices, with all segments of food inflation likely clocking positive month-on-month momentum.
Wholesale Pressure and Pass-Through
While April's headline inflation came in well below expectations, wholesale price inflation accelerated to a 3-1/2-year high of 8.3% in April. The poll showed wholesale inflation likely rose further to 9.05% in May. Economists expect higher input costs to gradually feed through to consumer prices.
| Indicator | April 2026 | May 2026 (forecast) |
|---|---|---|
| CPI inflation | 3.48% | 4.0% |
| WPI inflation | 8.3% | 9.05% |
| Transport inflation | -0.01% | 4.15% |
| Core CPI (estimated) | — | 3.80% |
Sakshi Gupta, principal economist at HDFC Bank, said 'the impact of the war should start showing up (in) the May print,' adding that pass-through from wholesale to consumer prices typically works with a lag. 'So far, inflation numbers have come in lower than expected because I think there was very limited pass-through and also lower gold prices were kind of pushing down the inflation print,' she noted.
Outlook and RBI Forecast
The RBI raised its inflation forecasts to 5.1% for the current fiscal year, up from its earlier estimate of 4.6%, the source reported. India's relatively subdued inflation has also been supported by softer-than-usual food price increases. However, economists warn that tailwind may be fading as rising temperatures push up vegetable prices.
The India Meteorological Department has warned that this year's monsoon could be the weakest in 11 years, which could exacerbate food inflation. Core inflation, which excludes volatile food and fuel prices, is expected at 3.80% in May, though India does not publish official core inflation data.
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