Retail inflation rose for the seventh straight month to 3.9% in May and reached its highest level since January 2025, but remained below the Reserve Bank of India’s target of 4%. However, the numbers could have been higher, barring a statistical flaw in the methodology for collecting petrol, diesel and LPG price data which treats the 15th day of the corresponding month as the reference standard.
The Consumer Price Index (CPI) grew by 3.93% in May 2026, marginally lower than the Bloomberg Economics Survey forecast of 4.02%. Core inflation, which measures the non-food and non-fuel portion of the CPI basket and is considered more immune to seasonal fluctuations, expanded 3.7% in May, up from 3.4% in April. The food and beverage portion of the CPI basket grew 4.6% in May compared to 4% in April. Part of the high growth in food inflation is due to the negative base effect. While the new CPI series does not give detailed readings before January 2026, food inflation in the old series was 1% in May 2025 and slid into deflationary territory between July and December 2025. The Reserve Bank of India’s Monetary Policy Committee expects the CPI to grow by 4.2% in the quarter ending June and 5.1% in the financial year 2026-27.
To be sure, the inflation that official data shows and the one the economy feels now could be different, with the latter being higher than the former. This is due to a statistical flaw in how the National Statistical Office (NSO) collects data for three critically important components of inflation currently: petrol, diesel and LPG. NSO’s final data for price point collection for petrol, diesel and LPG is 15th of the corresponding month. The rise in petrol and diesel prices due to the West Asia war last month meant that the retail price of petrol and diesel on May 31 was 6.9% to 7.8% and 7.7% to 8.7% higher in four metro cities compared to last year. However, the inflation rate in the fuel sectors in May as measured by the Consumer Price Index (CPI) was only 3.1% and 3.4%, respectively, according to data released on Friday by the Ministry of Statistics. The four metros saw inflation of only 2.8% to 3.2% in petrol prices and 3.1% to 3.5% in diesel prices by May 15. Unless prices are lowered, inflation tailwinds from rising fuel prices will be delayed until next month.
Although the CPI may have failed to capture the rise in fuel prices, it appears to capture a different secondary effect of the West Asian crisis. Restaurant and accommodation services, with a weight of 3.3% in the CPI, is one of the segments that is seeing a rapid rise in inflation. The inflation rate in this section ranged between 2.7% – 2.8% from January to March, but rose to 4.2% in April and 5.8% in May. All of the inflation in restaurants and accommodation is due to cooked meals and cooked snacks, and none of it is due to accommodation services, with inflation in May standing at just 1.8%. Cooked meals inflation ranged between 3.1% and 3.2% from January to March, then rose to 4.3% to 5.6% in April and May, likely because restaurants are now passing on higher LPG prices to consumers. Likewise, the inflation rate for cooked snacks ranged between 2.5% and 2.8% from January to March, then rose to 4.2% and 5.9% in April and May.
“May CPI inflation rose to 3.9% y/y as expected, led by food and transport. We revise our FY27 CPI inflation forecast by 50 basis points to 5.0% y/y. We expect the MPC to consider the supply shock-induced increase in inflation and keep interest rates unchanged in CY26,” Aastha Godhwani, chief economist at Barclays India, said in a note.
