Higher food and fuel prices pushed India's inflation up in May, according to a Reuters poll of economists who said good monsoon rains would temper it in the coming months and give the central bank room to ease further.
The survey predicted annual consumer price inflation nudged up to 5.52 percent in May from April's 5.39 percent.
Should that prove correct, it would put inflation further above the Reserve Bank of India's target of around 5 percent by March 2017 and 4 percent over the medium term and mean it is uncomfortably close to January's 17-month high of 5.69 percent.
"We've seen incremental price pressures build up in the month of May on account of vegetable prices, pulses and edible oils. In addition, fuel prices have also moved up," said Shubhada Rao, chief economist at Yes Bank.
But India's weather office has stuck to its initial forecast for above average monsoon rains, adding to hopes of a revival in farm output and in turn lower food prices and interest rates.
Indeed, some economists expect inflation to tick lower in the coming months.
"Given that monsoon has hit the peninsular (already), and over the month of June it will spread across the country, we expect some price pressures to begin easing," said Rao.
However, others cautioned that both lower inflation and further cuts to the RBI's policy rate are contingent on the monsoon, which hasn't always been reliable in the past.
RBI Governor Raghuram Rajan also struck a more cautious tone at the bank's policy meeting on Tuesday than he had in April.
Rajan said the RBI was looking for room to ease and listed a good monsoon and astute management of stocks by the government as prerequisites to offset inflationary pressures ahead.
The latest Reuters survey of over 20 economists also showed industrial output grew 0.5 percent in April, faster than 0.1 percent the month before.
Economists in the poll expect India's trade deficit to have widened to $5.40 billion in May, up from a previous $4.84 billion.
Updated Date: Jun 09, 2016 11:15 AM