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Key Points

Union Bank of India has revised its inflation forecast for 2025-26 downward to 3.6%, closely mirroring the RBI's projection of 3.7%. The bank attributes this to cooling food prices, which are expected to hit a 7-year low of 3%. While June's retail inflation is projected at 2.3%, the bank warns of a gradual rise from August. The RBI's rate-cutting cycle is seen as concluded, with the terminal rate pegged at 5.5%.

Key Points: Union Bank Cuts 2025-26 Inflation Forecast to 3.6% Aligning With RBI

  • Union Bank lowers FY26 inflation forecast to 3.6% from 4%
  • Food inflation expected to drop to 3%, lowest in 7 years
  • RBI rate cuts likely paused with terminal rate at 5.5%
  • June retail inflation projected at 2.3%, near-term bottom in July
3 min read

Union Bank of India cuts 2025-26 headline inflation forecast, largely in line with RBI

Union Bank revises FY26 inflation projection to 3.6%, citing cooling food prices and aligning closely with RBI's 3.7% forecast.

"In our optimistic scenario, we project FY26 CPI at 3.1% while pessimistic scenario forecast stands at 4.2% – Union Bank Report"

New Delhi, 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.

- ANI

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Reader Comments

S
Sarah B
As an expat living in Mumbai, I've noticed grocery bills becoming slightly more manageable. But I wonder - are these numbers truly reflecting ground reality? The report mentions it's contingent on climate conditions. With monsoon being unpredictable, shouldn't we be cautious?
P
Priya S
Inflation might be down but my household budget hasn't changed much. Prices never come down once they go up! Only the rate of increase has slowed. Government should focus more on increasing incomes rather than just controlling inflation numbers.
A
Arjun K
Good analysis by Union Bank. The food inflation part is crucial - we've seen how onion prices can bring down governments! Hope the monsoon behaves this year. RBI's cautious approach makes sense given global uncertainties.
V
Vikram M
While the numbers look positive, I'm concerned about the 'pessimistic scenario' of 4.2%. That's still high for common people. Also, why no mention of fuel prices? Diesel rates affect everything from vegetables to transport costs!
K
Kavya N
As a small business owner, lower inflation is great news! But banks should also reduce loan interest rates further. The 100 bps cut isn't enough when raw material costs are still high. Need more support for MSME sector!

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