The Union Finance Ministry has flagged risks to the inflation outlook, citing recent rises in fuel prices, volatile global energy prices, depreciation of the rupee, the possibility of below-normal monsoon rains and sharply rising wholesale prices, even as retail inflation remains within the Reserve Bank of India’s target range.
“Inflation dynamics in April 2026 reflect a growing divergence between relatively contained consumer prices and a sharp rise in wholesale prices,” the ministry said in its monthly economic review released on Saturday.
Retail inflation rose to 3.48% in April from 3.4% in March, remaining below the Reserve Bank of India’s target of 4% with a range of 2-6%, while the rise in the wholesale price index accelerated sharply to 8.3% from 3.88% during the same period.
While inflation in the retail sector rose marginally to 3.48% and remained below the Reserve Bank of India’s target, price pressures intensified in some food items and services such as restaurants and accommodation, the report said. Meanwhile, wholesale inflation was driven by higher global energy prices, rupee depreciation, and lower base effect.
“The sharp rise in upstream price pressures, coupled with recent increases in fuel prices, indicate a gradual transition to retail inflation through higher transport, energy and food-related costs in the coming months,” the report said.
The Ministry noted that “the recent rises (on four occasions) in gasoline and diesel prices (which have a combined share of about 5% in the CPI basket) were caused by $7.38 f $7.52, respectively, may activate the direct and indirect channels of transmission of the global price shock to retail inflation in the country.
State-run oil marketing companies have begun raising fuel prices in phases after global crude oil prices rose following the outbreak of conflict in West Asia on February 28.
An official at the Ministry of Petroleum said: “Even after four rounds of increases in motor fuel prices, oil and gas companies were losing approx $Revenue of 550 crores per day, indicating another price hike soon if global oil prices remain high. Benchmark Brent crude, which closed at a high on April 29 at $118.03 per barrel, fell on Friday (May 29) to $91.12, down 22.8%.
However, the review said India’s macroeconomic position remains resilient.
“Overall, India’s macroeconomic position in May 2026 reflects cautious resilience. Strong services exports, adequate foreign exchange reserves and a stable labor market provide a solid foundation,” it said.
At the same time, the report warned, “The confluence of high global energy prices, a depreciating rupee, rising production cost pressures, and the potential for lower than normal monsoon rains calls for sustained political vigilance.” The report added that managing FY27 will require flexibility across monetary, fiscal and structural dimensions to protect growth momentum and maintain inflation stability permanently, even as uncertainty in the global environment persists.
The ministry cited the Indian Meteorological Department’s forecast of monsoon rainfall of 92% of the long-period average. “Buffer stocks of rice and wheat of 817.53 lakh tonnes and adequate storage provide an adequate cushion for food grains. However, any significant shortfall in rainfall coupled with the current geopolitical conditions could translate into food inflation, weakening rural demand and overall growth,” it said.
However, the report expressed confidence in the underlying strength of the economy, noting that manufacturing and services activity remained in expansionary territory, the labor market was stable and foreign exchange reserves provided insulation against external shocks.
“Domestic fundamentals remain broadly sound, manufacturing and services PMIs are in expansionary territory, the labor market is stable, and foreign exchange reserves provide an effective buffer against external shocks,” he added.
Looking ahead, the review said the duration of any disruption in the Strait of Hormuz remains the most important variable for India’s external sector and inflation outlook.
“If normalization occurs soon, the conditions for a broader recovery, supported by strong services exports and sustainable investment commitments, are in place,” the report added. “Policy must remain flexible across the monetary, fiscal and structural dimensions to navigate this period of heightened uncertainty while keeping medium-term growth targets firmly in sight.”
