Explanation:

The annual wholesale price index jumped to its highest level last month posing a fresh ______ for policy makers to remain watchful on the price front.

In the given sentence the most suitable word to fill in the blank is 'challenge'.

It is a noun and the word means a call to someone to participate in a competitive situation or fight to decide who is superior in terms of ability or strength.

Hence this word suits the most to make the sentence complete and meaningful.

Hence option 4 is the correct answer.