New Delhi [India], January 13 : Inflation in the country is likely to stabilize at an average of 4.3-4.7 per cent in the financial year 2025-26 (FY26), according to a report by PL Capital.
The report highlighted that the inflationary pressures are expected to ease as food prices moderate and agricultural output stabilizes.
"Inflation is likely to average around 4.3-4.7 per cent in FY26, monetary policy easing likely: Food inflation seems to have peaked out and the overall trend is likely to moderate in 2025," it said.
The report noted that food inflation, which has been a significant contributor to rising prices in 2024, seems to have peaked. Improved agricultural production, driven by better rabi crop yields, is likely to play a key role in stabilizing food prices in 2025.
The central government has given the RBI the target to maintain inflation between 2 to 6 per cent band. It is called the tolerance band, while the median target is 4 per cent.
Additionally, the report suggested that any reduction in import duties on key products, particularly in response to rising global prices, could help mitigate inflationary pressures.
It also forecasts a stable core inflation trend in FY26. Reflecting this anticipated moderation, the report predicts monetary policy easing in the coming years. A 25-basis point (bps) reduction in the repo rate is expected in FY25, followed by an additional 50 bps cut in the first half of FY26.
The report also analyzed the inflationary trends of 2024, which saw significant pressures due to surging food prices. Extreme weather events, including heatwaves and erratic rainfall, disrupted agricultural yields, leading to higher prices for key commodities such as vegetables (onions, tomatoes, etc.), cereals, and edible oils.
In October 2024, CPI inflation breached the 6 per cent mark, while food inflation crossed double digits for the first time in 14 months. This was further aggravated by higher import duties on edible oils.
The report said, "CPI inflation breached 6 per cent in October, with food inflation crossing the double-digit mark after 14 months mainly due to impact of higher import duty on edible oils".
Looking ahead, the easing of food prices and stable agricultural production are expected to provide much-needed relief. Monetary policy adjustments, including rate cuts, are likely to support economic stability and help the Reserve Bank of India maintain inflation within its target range.
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