PL Capital projects easing inflation as food prices moderate and monetary policy eases over the next two years.
New Delhi, January 13: Inflation in India is projected to stabilize between 4.3-4.7% in the financial year 2025-26 (FY26), according to a report by PL Capital. The moderation is attributed to easing food prices and improved agricultural production, alongside anticipated monetary policy adjustments.
Key Findings from the Report
The report highlights that food inflation, a major contributor to the price rise in 2024, has likely peaked. Improved rabi crop yields and stabilized agricultural output are expected to drive food price moderation in 2025.
"Inflation is likely to average around 4.3-4.7% in FY26, with monetary policy easing likely. Food inflation seems to have peaked, and the overall trend is expected to moderate," the report stated.
Government and RBI's Role
The Reserve Bank of India (RBI) has been tasked with maintaining inflation within a 2-6% tolerance band, with a median target of 4%. The report suggests that any reduction in import duties on key commodities could further ease inflationary pressures.
Forecast for Monetary Policy
The report predicts a series of monetary easing measures, including a 25-basis point repo rate cut in FY25, followed by an additional 50-basis point cut in FY26. These adjustments are expected to bolster economic stability and align inflation with the RBI's target range.
Analyzing 2024 Trends
Inflationary pressures in 2024 stemmed largely from extreme weather conditions, such as heatwaves and erratic rainfall, which disrupted agricultural yields. This led to soaring prices of vegetables, cereals, and edible oils.
- October 2024: Consumer Price Index (CPI) inflation exceeded 6%, with food inflation hitting double digits for the first time in 14 months.
- Higher import duties on edible oils further exacerbated price increases during the period.
Looking Ahead
The report anticipates significant relief in the coming years as food prices stabilize and agricultural output normalizes. Additionally, strategic monetary policy interventions, including rate cuts, are expected to help maintain inflation within the RBI's target range.
The report concludes that a combination of domestic reforms, improved agricultural performance, and global price adjustments will play a pivotal role in driving India’s inflation trajectory towards stability in FY26.
