Informist, Monday, Jun. 16, 2025

By Shubham Rana

NEW DELHI – CPI inflation in India is expected to fall to a seven-year low of 3.5% in the current financial year, mainly on the back of lower food prices, with core inflation seen under control, according to a poll of 16 economists by Informist. In FY25, retail inflation averaged 4.6%.

At 3.5%, economists' expectation of CPI inflation for FY26 is 20 basis points lower than the Reserve Bank of India's latest forecast of 3.7%, and 50 bps below the central bank's medium-term target of 4%. Earlier this month, the central bank had lowered its inflation forecast for the year by 30 bps from 4.0%, with RBI Governor Sanjay Malhotra saying it was safe to assume that the war against inflation had been won.

"The near-term and the medium-term outlook now gives us confidence of not only a durable alignment of headline inflation with a target of 4% but also the belief that during the year, it is now likely to undershoot the target at the margin," Malhotra said in the monetary policy statement on Jun. 6. With inflation seen low and growth below aspirations, the RBI's Monetary Policy Committee earlier this month lowered the policy repo rate by a larger-than-expected 50 bps to 5.50%, bringing the cumulative easing this calendar year to 100 bps.

Retail inflation has been moderating for seven consecutive months now, with the headline print declining to 2.82% in May, the lowest since February 2019. Economists expect CPI inflation to fall further in June to around 2%.

The main reason behind the recent decline in headline inflation is a fall in food inflation, which makes up nearly 50% of the overall CPI basket. Food inflation fell to a 43-month low of 0.99% last month. Economists expect food inflation to remain well under control this year, barring any spikes in vegetable prices due to higher temperatures or excessive rains.

"Normal monsoon and thus higher food output bodes well for outlook on food inflation," ICICI Bank said in a report on Friday. "CPI inflation is seen remaining below 4% until end-December, after which it is seen rising because of a low base and perhaps a negative supply impulse," economists at ICICI Bank said. "In fact, inflation should see a sharp pick-up in next fiscal year, with an unfavourable base pushing inflation higher in H1." ICICI Bank expects inflation to rise to around 4.5% in FY27, similar to the RBI's projection.

STABLE CORE

While food inflation has moderated in recent months, core inflation has inched up steadily. Core inflation--which strips out food and fuel items, whose prices can be volatile--rose to a 19-month high of 4.2% in May because of an unfavourable base effect and higher gold prices.

In fact, higher gold prices have been the biggest reason behind the rise in core inflation in recent months. Excluding gold, core inflation remains benign, economists said.

Core inflation is expected to rise to around 4% in FY26, higher than 3.5% last year. "Looking ahead, if gold prices were to fall in 2H2025 (Jul-Dec), core inflation could fall quickly," economists at HSBC said in a report. "Add to this a stronger INR compared to early 2025, falling commodity prices, imported disinflation from China, and softer growth than a year ago – all indicating that core inflation is likely to remain soft in the coming months."

Barring any weather-induced food price spikes, CPI inflation this year is likely to fall below the RBI's 4% target for the first time in seven years. But this is likely to be as good as it gets in terms of low price pressures, with the RBI expecting retail inflation to rise beyond its target again next year.

The following is a summary of the economists' expectations of CPI inflation in FY26:

End

Edited by Avishek Dutta

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