CPI inflation edged up again in May 2026 and stood at 3.93%, up from 3.48% in the previous month. (Bloomberg median poll at 4.02%). Average CPI inflation for Q1 FY26 as per RBI estimate is 4.2% against April-May average of 3.6%- indicating that June 2026 reading could be above 5.0%. Food inflation increased to 4.55% from 4.01% in the previous month. Combined food and housing component (including rent, water, electricity, gas & other fuels) contributed about ~50% to the retail inflation in May 2026. Also, personal care, social service & miscellaneous goods & services which also includes jewellery contributed a higher share of ~24%. Core inflation stood at 4.2%, much higher than April 2026 print of 3.74%.

Even If US-Iran War Ends Soon, Domestic Inflation Could Stay Elevated For Sometime

The US-Iran war again seems to be near a potential end, with global brent oil prices already retreated below USD 90/bbl. A mutually favourable deal between the two nations could help ease market volatility both in India and abroad. However, a normalization of oil prices back to pre-conflict levels appears unlikely in the near term. Even if Brent crude stabilizes in the USD 80-90/bbl range following a peace agreement, domestic retail inflation could remain higher and potentially above 4.0% for some quarters.

RBI's Policy Trade-Off Intensifies Amid Inflation Concerns

RBI has already revised its CPI inflation projection upwards to 5.1% for FY26 from 4.6% earlier- indicating that the earlier assumed price level of brent oil at USD 85/bbl for FY2/ might be breached. While the domestic economy has been witnessing some improvement in macro indicators along with recovery in corporate profits, the economic growth still remains far from a sustained potential growth rate of ~8%. On one hand, growth still needs support, but increased inflation worries could tilt RBI's focus towards inflation, thereby again delaying the much-needed push for the economy.

lonic Wealth View

We expect inflationary pressures to remain elevated in India over the coming quarters, even if the conflict ends soon, as supply disruptions could take time to normalize. Separately, weather fears + higher fertiliser costs could translate to higher food prices. We have argued that current global macro situations are more negative inflation than growth. Therefore, central banks will likely be left with limited choices. With the European Central Bank already raising rates and the Bank of Japan expected to follow, a broader DM tightening cycle appears increasingly likely. If US FOMC also adopts a tightening bias, EMs will have a little choice but to hike.

We believe the condition remains fluid with a lot dependent on

a) end of war

b) subsequent normalisation of energy supply

c) domestic food prices

d) currency dynamics affecting imported inflation and finally the regrowth support that India inc needs in the current moment.

(Source: MoSPI, Ionic Wealth)