India’s Inflation Likely to Stabilize at 4.3-4.7% by FY26: Report
India’s inflation is projected to stabilize at an average of 4.3-4.7% in the financial year 2025-26 (FY26), according to a recent report by PL Capital. This optimistic outlook reflects expectations of moderating food prices and improved agricultural output.
Food Inflation Expected to Ease
Food inflation, a key driver of price increases in 2024, appears to have peaked, the report noted. The stabilization is attributed to better agricultural yields, particularly during the rabi season, which is expected to support stable food prices in 2025. Improved crop production and consistent government measures could mitigate inflationary pressures significantly.
Monetary Policy Easing Predicted
The report anticipates monetary policy easing in the coming years. A 25-basis point (bps) cut in the repo rate is projected in FY25, followed by an additional 50 bps reduction in the first half of FY26. This strategy aligns with the Reserve Bank of India’s (RBI) inflation target of maintaining the Consumer Price Index (CPI) within the 2-6% tolerance band, with a median target of 4%.
Impact of 2024 Inflation Trends
The year 2024 witnessed significant inflationary pressures due to surging food prices. Extreme weather events, including heatwaves and erratic rainfall, disrupted agricultural yields, driving up the costs of essential commodities such as vegetables, cereals, and edible oils. In October 2024, CPI inflation surpassed 6%, while food inflation crossed double digits for the first time in over a year.
Higher import duties on edible oils further exacerbated the situation. However, the report suggests that reducing these duties in the future could help control inflationary trends.
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A Stable Core Inflation Outlook
Looking ahead, core inflation is expected to remain stable in FY26. A combination of easing food prices, improved agricultural production, and monetary policy adjustments is likely to support economic stability. The anticipated rate cuts could provide much-needed relief, boosting consumer and business confidence.
Conclusion
As India moves towards FY26, the outlook for inflation appears encouraging, with the potential for stabilization around 4.3-4.7%. Effective government policies, agricultural improvements, and monetary adjustments are expected to play pivotal roles in achieving this target and fostering economic stability.
