In its June Bulletin’s “State of the Economy” article, the central bank said “consumer price index (CPI) inflation increased in May 2026 to 3.9 per cent from 3.5 per cent in previous month, driven by broad-based increases across food, fuel and core components.”
Also read: RBI expected to hold repo at 5.25% as uncertainty eases, will watch food and fuel pass-through: BofA Securities
The RBI also warned that “heightened geopolitical tensions in West Asia and uncertainties surrounding global trade policies have increased downside risks to global growth and upside risks to inflation.”
At the same time, the report noted that the Indian economy has remained resilient, with high-frequency indicators pointing to sustained economic activity in May.
“With anticipated opening of the Strait of Hormuz and gradual restoration of supply chains, crude oil prices have exhibited significant correction in June so far,” the RBI said.
The bulletin also noted that “Brent crude oil prices sharply corrected to below US$80 after the announcement of West Asia peace deal in the third week of June.”
Fuel inflation picks up
The RBI said retail inflation accelerated in May, partly due to higher fuel prices.
“Consumer price index (CPI) inflation increased in May 2026 to 3.9 per cent from 3.5 per cent in previous month, driven by broad-based increases across food, fuel and core components,” it said.
The central bank further noted that “the rise in transport fuel prices reflects the latest adjustment of retail prices by oil marketing companies.”
Domestic cooking gas prices have also risen.
“Domestic household LPG prices were increased by ₹29 per 14.2 kg cylinder in June, following ₹60 hike in March 2026,” the bulletin said.
The RBI warned that “heightened geopolitical tensions in West Asia and uncertainties surrounding global trade policies have increased downside risks to global growth and upside risks to inflation.”
Also read: RBI MPC minutes: Policy misstep fears drove rate pause amid West Asia uncertainty
Consumer confidence weakens
The bulletin indicated that the conflict has begun affecting consumer sentiment even as economic activity remains resilient.
“The latest round of Consumer Confidence Survey showed a weakening sentiment arising from the evolving macroeconomic conditions besides uncertainties emanating from the ongoing conflict in West Asia,” the RBI said.
According to the central bank, “the Current Situation Index in urban areas remained in pessimistic zone driven primarily by deterioration in sentiments with respect to general economic condition, employment scenario and spending.”
Although households remain optimistic about the future, confidence has moderated. “Future Expectations Index also moderated while remaining in optimistic zone. Similar trends were observed for rural areas,” the bulletin said.
Growth momentum remains resilient
Despite the external uncertainties, the RBI maintained that domestic economic activity has held up well.
“The Indian economy displayed strength in terms of the provisional GDP estimates for 2025-26,” the bulletin said.
It noted that “GDP growth during Q4:2025-26 remained robust at 7.8 per cent, driven by private consumption and fixed investment.”
The central bank added that “high-frequency indicators point towards sustained economic activity in May” and that “domestic demand conditions remained resilient, supported by urban demand.”
The bulletin also pointed to signs of stress in the manufacturing sector from the conflict in West Asia.
“The Pulse Survey conducted by the Reserve Bank during May 2026 shows headwinds for manufacturing activity amidst the West Asia conflict,” it said.
According to the survey, more than 80 per cent of firms reported higher input costs, with a sizeable share indicating an adverse impact on production.