India’s inflation may stay below 4% in first half of FY26

New Delhi

India’s headline inflation is expected to stay below the Reserve Bank of India’s (RBI) target of 4 per cent for the next two quarters, according to a report by CareEdge Ratings released on Saturday. The report says this is due to a favourable base effect and lower food prices.

Consumer Price Index (CPI) inflation dropped to 2.1 per cent in June 2025—the lowest since January 2019. This fall is mainly because of a price drop in food and beverages like vegetables, pulses, spices, and meat. However, prices of edible oils and fruits remain high, still showing double-digit inflation.

The report notes that inflation may rise again in the third quarter of this financial year and could cross 4 per cent in the last quarter as the base effect weakens. For the full financial year 2025–26, CPI inflation is expected to average around 3.1 per cent, lower than the RBI’s estimate of 3.7 per cent.

Looking ahead to 2026–27, inflation might rise to about 4.5 per cent due to the low base effect of the previous year.

Edible oil prices are still a concern because India relies heavily on imports. However, the recent cut in customs duty and strong kharif crop sowing may help ease inflation.

With inflation under control, the RBI is likely to keep interest rates steady during its August policy meeting. It will likely wait to see how previous rate cuts affect the economy.

Despite global challenges, India’s economic position remains strong with $695 billion in foreign reserves. The current account deficit is expected to be just 0.9 per cent of GDP, supported by steady service exports.