Retail inflation jumped to 4-month high of 4.87 per cent in May on costlier food items such as fruits, vegetables and cereals coupled with high fuel rates.
In its latest policy review earlier this month, the RBI raised the repo rate - at which it lends to banks - by 0.25 per cent to 6.25 per cent, the first hike in more than four years due to growing concerns about inflation stoked by rising global crude oil prices as well as domestic price increases.
Central banks in many emerging markets are raising rates to stem capital outflows, battle inflation and support domestic currencies following a resurgence in the dollar on higher USA interest rates.
The Federal Reserve on Wednesday is widely expected to raise US rates for the second time this year. Excluding, the HRA revisions, the CPI inflation is projected at 4.6 per cent in first half (April-September) and 4.7 per cent in second half (October-March).
The previous high in retail inflation was in January this year at 5.7 per cent. The central bank however, kept its "neutral" policy stance unchanged.
Analysts polled by Reuters had forecast May's CPI inflation at 4.83 percent, compared with April's 4.58 percent. "The possibility of one more rate hike can not be ruled out this year".
May was the seventh straight month in which inflation was higher than the RBI's medium-term target of 4 percent.
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However, Bank of America Merill Lynch said base effects is driving up the inflation number and added that the RBI will be on "long hold".
The Indian economy grew 7.7% year-on-year in January-March, its quickest pace in almost two years driven by higher growth in manufacturing, the farm sector and construction, data showed last month.
Oil is India's biggest import and an increase in oil prices raise push inflation up and widen the trade deficit, putting pressure on the rupee.
Average petrol and diesel prices are their highest since August 2014.
Core inflation, which excludes food, energy, tobacco and alcoholic drinks, stayed at 2.1 percent last month.
'However, these effects have been partly offset by price falls in computer games and energy costs rising by less than this time previous year'.