RBI Lowers Inflation Forecast for FY26; Highlights Food Deflation and Core Inflation Trends
The Reserve Bank of India (RBI) revised its Consumer Price Index (CPI) inflation forecast for the financial year 2025-26, cutting the projection to 3.1% from the earlier 3.7% estimated in June. RBI Governor Sanjay Malhotra announced this during the Monetary Policy Committee (MPC) meeting outcome. He said, “CPI inflation for the current year 2025-26 is now projected at 3.1 percent. This is down from 3.7 percent that we had earlier projected in June.” Inflation has softened for the eighth straight month, with June recording a 77-month low of 2.1%. This decline owes much to deflation in food items such as vegetables, pulses, and oilseeds. With agriculture improving and supply-side measures working, the RBI expects continued food price softening, especially in July.
Inflation Trends: Food Deflation and Core Inflation Update
Governor Malhotra highlighted food inflation’s sharp moderation, registering a negative 0.2% in June, the first since February 2019. This deflation is mainly due to vegetable, pulse, and oilseed prices dropping, driven by robust agricultural output and effective supply interventions. The Governor also noted fuel inflation eased to 2.6% for the second month in a row. However, core inflation ticked up slightly to 4.4% in June, climbing from the 4.1%-4.2% range between February and May. Malhotra linked this rise to a steady increase in gold prices, keeping core inflation mildly above the 4% mark for the foreseeable future.
Key Highlights
- RBI revised FY26 CPI inflation forecast to 3.1% (down from 3.7%)
- June CPI inflation dropped to 2.1%, lowest in 77 months
- Food inflation registered -0.2% in June, first deflation since Feb 2019
- Deflation driven by vegetables, pulses, oilseeds prices falling
- Fuel inflation eased to 2.6% in June
- Core inflation rose slightly to 4.4% in June
- RBI expects inflation to rise modestly above 4% in Q4 FY26
- Weather-related shocks remain a risk to inflation outlook
RBI Outlook: Inflation, Risks, and Economic Buffers
Governor Malhotra attributed the favorable inflation outlook to healthy kharif sowing, adequate reservoir levels, and comfortable buffer stocks of food grains. He said inflation might rise modestly above 4% in Q4 of FY26 as base effects fade and demand picks up. Malhotra also flagged weather-related shocks as an ongoing risk to inflation stability. Despite potential pressures, the RBI expects core inflation to remain moderately above 4% throughout the year. The RBI remains watchful, balancing growth and inflation risks carefully to maintain economic stability in a dynamic environment.
(From ANI)
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