India Inflation Seen Rising to 4% in May on Food Costs

India’s inflation rate likely increased to 4% in May, according to a Reuters survey of economists. The rise was mainly caused by higher vegetable prices and increased fuel costs. For the past 15 months, inflation has stayed below the Reserve Bank of India’s (RBI) target of 4%. However, this trend may be ending as prices of essential goods and services start rising again. One of the biggest reasons for the increase in fuel prices is that state-owned fuel companies raised fuel prices four times during May, making transportation more expensive. At the same time, vegetable prices also increased after remaining low for much of last year. 

Reuters conducted a survey between June 3 and June 8 and found that economists expect consumer price inflation to rise from 3.48% in April to 4.0% in May. Kanika Pasricha, Chief Economic Adviser at Union Bank of India, said that higher vegetable and transport costs were the main reasons behind the expected increase in inflation. Even with inflation moving higher, it remains close to the RBI’s target. Because of this and the country’s strong economic growth, the central bank decided to keep interest rates unchanged last week. RBI Governor Sanjay Malhotra said inflation pressures remain under control, but the bank is closely watching for any further increase in prices. 

The ongoing Iran-US conflict is a big part of it, which has urged the government to raise petrol prices quite often. According to economists, the impact of rising wholesale prices usually takes some time to appear in consumer prices. India has benefited from lower food inflation in recent months, but this support may weaken. Rising temperatures across many parts of the country have started pushing vegetable prices higher. The Indian Meteorological Department has also warned that this year’s monsoon could be the weakest in 11 years, which may affect crop production and food prices.

Meanwhile, wholesale inflation reached a three-and-a-half-year high of 8.3% in April and is expected to rise further to 9.05% in May. Economists say these higher costs for businesses could gradually lead to higher prices for consumers in the coming months.