"Retail food inflation has been higher than non-food and the difference may be partly attributed to the onset of summer heat waves as retail vegetable inflation, with a weight of 6% in CPI basket, increased to 18.26% in May 2022," the ministry adds.

‘Oils and fats’ are yet another significant contributor to food inflation. India imports about 60% of its edible oil needs, and domestic prices of edible oils are vulnerable to volatility in global edible oil prices.

In March 2022, the inflation in ‘oils and fats’ stood at 18.7%, as global edible oil prices rose following a breakdown in the production and supply chains of sunflower oil in the Black Sea region, which also caused the prices of alternatives such as soyabean oil and palm oil to sharply increase. In April 2022, inflation in “oils and fats” slightly declined to 17.3% and moderated further to 13.3% in May 2022 as Indonesia withdrew an export ban on crude palm oil and refined palm oil exports. Additionally, the Indonesian government has stated that it will bring down the combined export taxes to $488/tonne from $575/tonne to encourage shipments. This measure is expected to further ease edible oil prices in the global and domestic markets.

As per the ministry, the non-food inflation has been mainly fuelled by sharp volatility and an uptick in global crude oil prices. The average price of dated Brent crude rose from $105.8/barrel in April 2022 to $112.4/barrel in May 2022, as the Chinese cities of Shanghai and Beijing eased Covid-19 norms and Europe planned to cut its Russian oil consumption by 90% by the end of 2022.

Consequently, the average price of the Indian crude basket increased from $103/barrel in April 2022 to $109.3/barrel in May 2022. Notably, India imports about 80% of its crude oil needs, which means an increase in global crude oil prices translates into a higher cost of imports widening the country’s trade deficit.

International crude prices may be tempered in the medium run as global growth prospects weaken and the organisation of petroleum exporting countries (OPEC) increases supply. "Global crude supply may tighten as western nations wean themselves off Russian energy. Whether the price of India’s crude basket stays elevated in the next six months also depends on how successful India is in sourcing crude oil imports from countries willing to sell crude at lower prices," the ministry adds.

Another import component of high inflation is the eventual pass-through of input costs from wholesalers/manufacturers to retailers, which could keep retail inflation high. "The pass-through may have already commenced as core inflation (non-food, non-fuel) continued to remain sticky at 7.1% in April 2022 and 5.9% in May 2022," says the ministry.

What is causing inflation in India

Retail inflation to decline to 6% in medium-term: FinMin