India's Inflation Forecasted to Ease to 4.3-4.7% in FY26

According to a report by PL Capital, inflation in the country is likely to stabilise at 4.3-4.7 per cent on average in FY 2025-26. The report highlights that inflationary pressures are expected to ease due to softening of food prices and stagnant agricultural production. It said, inflation is likely to average around 4.3-4.7 per cent in FY 2026, monetary policy easing is likely: food inflation has peaked and the overall trend is likely to moderate in 2025.

The report states that food inflation, which has been a significant contributor to rising prices in 2024, has peaked. Improved agricultural production, driven by improved rabi crop yields, could play an important role in stabilising food prices in 2025. The central government has mandated the RBI to maintain inflation in the range of 2-6 per cent.

This is called the tolerance band, while the average target is 4 percent. Additionally, the report suggested that any reduction in import duties on key products, especially in response to rising global prices, could help ease inflationary pressures.

It also forecasts a stable core inflation trend in FY26. Reflecting this anticipated softness, the report predicts a easing in monetary policy in the coming years. A reduction in the repo rate by 25-basis points (bps) is expected in FY25, followed by an additional 50 bps cut in the first half of FY26.

The report also analyses the inflation trends of 2024, which saw significant pressure due to the surge in food prices.

Extreme weather events, including heat and erratic rainfall, disrupted agricultural yields, leading to higher prices of key commodities such as vegetables (onions, tomatoes, etc.), cereals, and edible oils.

In October 2024, CPI inflation crossed the 6 per cent mark, while food inflation crossed double digits for the first time in 14 months. This was further aggravated by high import duty on edible oils.