India’s inflation trajectory is beginning to show signs of renewed pressure, with both consumer and wholesale prices rising sharply in May 2026 amid higher food costs, fuel price increases and global commodity volatility, according to separate research reports by HSBC and Bank of Baroda.
While retail inflation remains within the Reserve Bank of India’s tolerance band for now, economists warn that a combination of rising energy prices, weather disruptions and global supply-side risks could push inflation significantly higher in the coming months.
Retail inflation rises to 3.9%, food prices begin climbing again
According to HSBC’s analysis shared with Financial Express Digital, India’s Consumer Price Index (CPI)-based inflation rose to 3.9% year-on-year in May 2026, higher than 3.5% recorded in April.
The report noted that monthly inflation momentum accelerated to 0.5% compared to 0.2% in April, indicating that price pressures are gradually feeding through the broader economy.
A major contributor was food inflation, which rose after several parts of India experienced intense heatwaves in May.
Vegetable prices, particularly tomatoes, chillies and cabbage, witnessed a sharp rise, while fruits, edible oils and spices also became more expensive.
HSBC noted that food inflation momentum accelerated to 0.6% month-on-month, compared to 0.3% in April.
Fuel inflation spikes after petrol and diesel price revisions
Energy inflation also emerged as a major concern during May. HSBC said fuel-related inflation rose sharply after petrol and diesel prices were revised upward by Rs 7.5 per litre during the month.
The report said inflation in the energy segment jumped 1.1% sequentially, driven by rising prices of petrol, diesel, kerosene, coal and biogas.
However, HSBC believes the full impact of fuel price increases may only reflect in June inflation data, since fuel price revisions were implemented in the middle of May.
Core inflation touches 11-month high
India’s core inflation, which excludes food and fuel, climbed to 3.9% in May, the highest level seen in nearly 11 months.
According to HSBC, sectors like restaurants and accommodation services saw noticeable price increases due to a sharp 43% rise in commercial LPG cylinder prices. However, the report added that inflation has not yet become broad-based.
Its diffusion index showed nearly 75% of items in the CPI basket are still rising at below 4% annually. Excluding gold and silver prices, headline inflation would have been significantly lower at 3.1%.
Wholesale inflation surges to 9.7%, highest in new series
Separately, Bank of Baroda Research revealed a much sharper rise in wholesale inflation pressures.
According to economist Sonal Badhan of Bank of Baroda, India’s Wholesale Price Index (WPI) inflation surged to 9.7% in May 2026, compared to 8.3% in April and negative 0.2% in May last year.
The Ministry of Commerce has also introduced a revised inflation measurement framework, changing the WPI base year from 2011-12 to 2022-23 while gradually transitioning towards Producer Price Index (PPI)-based inflation tracking.
The report said all three major segments such as food, fuel and manufactured products contributed to the sharp inflation rise.
Food inflation rises sharply across vegetables, grains and dairy
Bank of Baroda’s report showed wholesale food inflation rose to 4.5% in May compared to just 0.1% in the same period last year. Vegetables such as tomato, ginger, cucumber, cabbage and okra recorded sharp price increases.
Milk inflation rose to 3.3%, while eggs, meat and fish inflation jumped to 5.4%. Food grain inflation also edged higher, driven by rising prices of paddy, jowar and pulses.
Fuel and power inflation jumps over 30%
One of the biggest concerns flagged by Bank of Baroda was fuel inflation. The report showed fuel and power inflation surged 30.3% in May, the highest in the current inflation series. This was largely driven by crude petroleum and natural gas prices.
Crude petroleum inflation jumped a staggering 85% year-on-year, while natural gas inflation rose 30.1%.
The bank noted that geopolitical tensions in West Asia earlier this year contributed heavily to rising crude oil prices globally, while rupee depreciation further increased import costs.
Manufacturing inflation signals cost pressures building
Core wholesale inflation also climbed sharply. Bank of Baroda said manufactured products inflation rose to 7.5% in May, the highest level in the revised inflation series.
Sectors seeing significant cost increases included chemicals, basic metals, textiles, electrical equipment and tobacco products.
The report added that aluminium prices rose over 40%, while zinc inflation surged over 17%.
RBI may face pressure to raise interest rates again
HSBC warned that inflation could remain elevated through the financial year due to two simultaneous risks, rising energy prices and weather disruptions caused by El Nino.
Its model estimates that temperature-related disruptions and El Nino conditions alone could add nearly 0.5 percentage points to inflation over the year. The bank expects headline inflation to average 5.6% in FY27.
Following these risks, HSBC believes the Reserve Bank of India may tighten monetary policy further.
The RBI has already raised its inflation forecast from 4.6% to 5.1% in its June policy review while lowering growth projections from 6.9% to 6.6%.
HSBC now expects two additional rate hikes of 25 basis points each in August and October, which could take the repo rate to 5.75%.