Fabiana Negrin Ochoa and Jihye Lee


India's consumer-price growth sped up again in May as more of the impact of the Middle East conflict fed through, a development that could fuel rate-hike expectations.

The consumer-price index rose 3.93% last month, compared with a 3.48% increase in April, government data showed.

That missed the 4.0% that economists in a Wall Street Journal poll had projected as higher energy costs stoke inflationary pressure in economies like India that rely on oil and gas imports.

Market bets on hawkish tilts by central banks have been rising as the Iran crisis drags on, crystallizing the risk of the highly undesirable combination of slowing growth and accelerating inflation.

Several monetary authorities in Asia have already tightened policy settings pre-emptively, but the Reserve Bank of India has remained in the wait-and-see camp.

At its last meeting earlier this month, the RBI held rates steady, judging that the Indian economy has held up well against the headwinds stemming from the conflict.

Headline inflation remains below target and private consumption has been resilient, it said. Still, the bank raised its inflation projection for the current fiscal year, warning that it could rise further.

It also trimmed its growth forecast for the fiscal year ending March.

"Faced with difficult trade-offs, monetary policy has turned more cautious," said RBI Gov. Sanjay Malhotra at the time.

Economists are divided on how much strain India can absorb, with many pointing out that it entered the current period of volatility from a sturdy point of very low inflation and solid economic growth.

Still, the rupee has been under immense pressure from the geopolitical turmoil, India's import bill is swelling and uncertainty is high.

DBS's economics team thinks that since inflation is at the mid-range of the 2%-6% target, it is likely less of an immediate policy concern for the central bank.

But if geopolitical risks stay high, businesses are likely to gradually pass on higher costs to consumers, which together with fuel-price adjustments could intensify inflationary pressures and potentially pave the way for monetary tightening, DBS said in a recent note.


Write to Fabiana Negrin Ochoa at fabiana.negrincohao@wsj.com and Jihye Lee at jihye.lee@wsj.com


(END) Dow Jones Newswires

06-12-26 0657ET