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Key Points

India’s inflation is expected to stay below 4% for the next two quarters, driven by lower food prices and base effects. However, it may rise beyond 4% in late FY26 and reach 4.5% in FY27. The RBI is likely to maintain current rates in its upcoming policy review. Strong forex reserves and controlled current account deficit bolster India’s economic resilience.

Key Points: India Inflation to Stay Below 4% for Next Two Quarters

  • CPI inflation drops to 2.1% in June 2025, lowest since 2019
  • Food prices ease but edible oils still see double-digit inflation
  • RBI likely to hold rates in August policy meeting
  • Strong forex reserves and low CAD support India’s external stability
2 min read

Inflation likely to stay below 4 pc for next 2 quarters: Report

Inflation in India expected to remain under 4% due to easing food prices and base effect, but may rise in FY27, says CareEdge report.

"“Inflation is projected to rise to about 4.5% in FY27 due to low base effects.” – CareEdge Ratings"

New Delhi, Aug 2

Headline inflation in India is expected to stay below the Reserve Bank of India’s (RBI) 4 per cent target over the next two quarters, supported by a favourable base effect and muted food prices, a new report has said.

The data compiled by CareEdge Ratings said the recent moderation in inflation has been largely driven by easing food prices, with CPI inflation falling to 2.1 per cent in June 2025 -- the lowest level since January 2019.

The report noted that while inflation is likely to remain low in the near term, it could start rising from the third quarter and cross the 4 per cent mark in the last quarter of the current financial year as the base effect fades.

For FY26, the agency expects CPI inflation to average around 3.1 per cent, which is lower than the RBI’s projection of 3.7 per cent.

“However, due to the low base in FY26, inflation is projected to rise to about 4.5 per cent in FY27,” the report said.

The sharp fall in June inflation was led by deflation in food and beverages, including vegetables, pulses, spices, and meat.

However, prices of edible oils and fruits continued to show double-digit inflation.

While elevated edible oil prices remain a concern due to India’s dependence on imports, the report said the recent cut in customs duty and healthy kharif sowing should help ease pressures in the coming months.

The report said the RBI, having already frontloaded rate cuts and ensured surplus liquidity, is likely to hold rates in the upcoming August monetary policy meeting.

The central bank may adopt a wait-and-watch approach to assess the impact of earlier rate cuts, especially with the US Federal Reserve maintaining a hawkish stance and the dollar strengthening.

Despite global headwinds, India’s external position remains strong, with foreign exchange reserves at $695 billion and the current account deficit projected at just 0.9 per cent of GDP in FY26.

Healthy services exports are expected to continue supporting the external sector, the report said.

- IANS

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Reader Comments

S
Sarah B
As an expat living in India, I'm impressed with RBI's handling of inflation. The 2.1% figure is remarkable compared to what we're seeing in Western economies. But I wonder - are these numbers reflecting actual ground reality in smaller towns?
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Ananya R
Good analysis but I'm skeptical about food prices staying low. Monsoon has been erratic this year in our region. If crop production suffers, vegetable prices will shoot up again like last year. Government should strengthen supply chains.
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Vikram M
RBI's conservative approach is working well. Our forex reserves at $695 billion is a strong cushion against global uncertainties. Hope they maintain this stability while supporting growth. Jai Hind! 🇮🇳
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Kavya N
While numbers look good, common people are still struggling with high prices of essentials like cooking oil and fruits. Government should focus more on reducing import dependence in these sectors through local production.
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Michael C
Interesting to see India's inflation management outperforming many developed nations. The current account deficit projection at just 0.9% of GDP is particularly impressive. Could India become a model for other emerging markets?

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