India’s May retail inflation at 3.93%, the highest in the current CPI series and roughly a 15-month high if compared with the previous series, has begun to reflect the pass-through effects of surging food and fuel costs more clearly than in previous months.

However, last month’s wholesale inflation numbers, the first under the new WPI series and due later this month alongside India’s first Producer Price Index (PPI), should reveal how much of the price shock producers and wholesalers continue to absorb.

May’s food inflation rose at a faster clip to 4.78% from 4.20% in April.

While transport inflation rose by 1.75% after a marginal contraction in April, a subdivision within the sector — transport services for goods — surged by 7.63%, signalling growing price pass-through.

This was largely driven by the four tranches of petrol and diesel price increases beginning in mid-May.

Significantly, the sharp rise in commercial LPG prices — by about ₹1,300 per 19-kg cylinder, representing an increase of over 75% since February — appears to be reflected in inflation in the restaurants and accommodation services category, which stood at 5.75%, the second-highest division after personal care and miscellaneous goods and services.

Inflation in the latter category reached 18.46%, reflecting soaring precious metals prices.

Domestic LPG’s second price revision by ₹29 earlier this month will likely find a fuller expression in June’s consumer food price inflation.

Although May’s inflation remains below the RBI’s 4% target and within its 2%-6% tolerance band, the RBI retained its neutral stance at its latest monetary policy review, signalling concern over the possibility of further price pressures.

Its intervention in the foreign exchange market through dollar sales has meanwhile helped shore up the rupee, Asia’s worst-performing currency since the U.S.-Israeli conflict with Iran escalated.

The currency, which briefly approached ₹97 to the dollar in May, is now trading closer to ₹95-₹96.

The Centre may nevertheless draw some comfort from the fact that core inflation, which excludes food and fuel, remained relatively contained at around 3.8%-3.9% in May, largely unchanged from recent months.

this comfort is diluted by WPI core inflation, which has begun to trend upwards, rising from 0.8% in April to 1.1% in May.

This upward trend in wholesale prices suggests that consumer price pressures are likely to persist, particularly as manufacturers pass on higher input costs to buyers.

Ultimately, to keep inflation in check and protect the economic recovery, policy makers must address structural supply-side issues in agriculture and energy, rather than relying solely on monetary tightening.