New Delhi [India], July 13 : With food prices lagging seasonal trends and driving headline Consumer Price Index-based retail inflation below 4 per cent since February 2025, Union Bank of India has revised downwards its 2025-26 headline inflation forecast from 4 per cent to 3.6 per cent (largely aligned with the RBI' forecast of 3.7 per cent).
The June retail inflation data is due early next week.
In a report, the bank said June 2025 retail inflation will be at 2.3 per cent, with the worst seems to be over for now. According to them, July figures would be the near-term bottom.
"...in our optimistic scenario, we project FY26 CPI at 3.1 per cent while pessimistic scenario forecast stands at 4.2 per cent. It is noteworthy that even in the pessimistic scenario, we are projecting the CPI for FY26 at 40 bps below that of FY25," the report read.
More importantly, it added that cooling in inflation to sub-4 per cent is largely contingent on drop in "sticky" food inflation.
After remaining sticky in 6.5-7.0 per cent range consistently during 2022-23-25, food inflation is projected to slip in 2025-26 to 3 per cent lowest in 7 years.
"...while in recent years, food prices have been spilling over in recent years (acknowledged by RBI study with similar name), the expectation of sharp cooling in food CPI this year is contingent on favourable climate conditions," the bank's report dated July 11 read.
On the RBI monetary policy front, the report said they continue to believe that the rate cutting cycle stands concluded for now with terminal rate of 5.50 per cent. The RBI has cut repo rate by 100 basis points cumulatively since early this year.
"Similar to the MPC, we expect a gradual increase in CPI from August'25 onwards as favourable base effects fade and likely breach the comfort level of 4 per cent in H2-FY26," the report noted.
Continuing its downward trend, consumer price inflation in India hit an over six-year low in May, in respite to common people.
According to the statistics ministry, the year-on-year inflation rate based on Consumer Price Index (CPI) for the month of May was 2.82 per cent (provisional). It is the lowest year-on-year inflation since February 2019.
The significant decline in inflation in May is attributable to a decline in prices of pulses and products, vegetables, fruits, cereals and products, household goods and services, sugar and confectionery and egg, coupled with the favourable base effect.
The inflation rate is within the Reserve Bank of India's (RBI) manageable range of 2-6 per cent.
Retail inflation last breached the Reserve Bank of India's 6 per cent upper tolerance level in October 2024. Since then, it has been in the 2-6 per cent range, which the RBI considers manageable.
Retail inflation last breached the Reserve Bank of India's 6 per cent upper tolerance level in October 2024. Since then, it has been in the 2-6 per cent range, which the RBI considers manageable. The inflation outlook for the year 2025-26 has been revised downwards by the RBI from its earlier forecast of 4 per cent to 3.7 per cent.
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