The Finance Ministry has flagged emerging inflation risks in the economy, warning that rising wholesale prices, elevated energy costs and recent increases in petrol and diesel prices could gradually pass through to consumers in the coming months, even as retail inflation remains relatively contained.
In its Monthly Economic Review for May 2026, released by the Department of Economic Affairs (DEA), the ministry said the current divergence between retail and wholesale inflation indicates that upstream cost pressures are building in the economy. While the pass-through to consumers has so far remained limited, higher fuel prices could activate both direct and indirect transmission channels, potentially lifting transport, energy and food-related costs.
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The report noted that a below-normal monsoon could further add to food price pressures, compounding the impact of elevated global energy prices. However, it added that second-round inflationary effects and their persistence would need to be evident in the data before any policy response is triggered. Despite these risks, the ministry maintained that India's near-term economic outlook remains one of “cautious resilience”, supported by expansionary manufacturing and services activity, a stable labour market and comfortable foreign exchange reserves.
It said strong services exports and sustained investment commitments continue to provide support to growth.The report cautioned that the duration of disruptions in the Strait of Hormuz remains the single most consequential variable for India's external and inflation outlook. It added that navigating the current phase of global and climatic uncertainty would require agility across fiscal, monetary and structural policy dimensions while keeping medium-term growth objectives firmly in view.
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