India's Inflation Forecast: What to Expect in FY26 Amidst Agricultural Growth

A recent Crisil report predicts that India's inflation will average 3.5% in FY26, down from 4.6% last year, thanks to strong agricultural production. With Kharif sowing up by 4% and stable crude oil prices, food inflation is expected to remain low. Retail inflation has dropped significantly, providing a boost to household purchasing power, particularly for lower-income groups. This trend may lead to further monetary policy easing, benefiting interest-sensitive sectors. Read on to explore the detailed insights and implications of these projections.

By Narendra Chaudhary Aug 13, 2025, 11:24 IST

Inflation Projections for India

New Delhi: A recent report by Crisil has forecasted that India's overall inflation rate will average around 3.5% for the fiscal year 2026, a decrease from 4.6% in the previous year, largely due to robust agricultural output that is expected to stabilize food prices.

As of August 8, Kharif sowing has increased by 4.0% compared to last year, and favorable soil moisture conditions are anticipated to benefit the upcoming rabi crop.

The report suggests that if geopolitical tensions remain manageable, Brent crude oil prices are likely to stay low, estimated between $60 and $65 per barrel, which should help keep non-food inflation in check.

India's retail inflation has significantly decreased over the past year, dropping to 1.6% in July from 2.1% in June, and down from 3.6% a year earlier, now falling below the Reserve Bank of India's lower tolerance limit of 2%.

Food prices have experienced notable deflation, with core inflation also seeing a sharp decline as the effects of mobile tariff adjustments faded. Food inflation is currently at -1.8%, the lowest since January 2019, down from -1.1% in June.

The combination of strong food production and sufficient stock levels is contributing to lower prices. Core inflation has also decreased to 3.9% from 4.4%, primarily due to a significant drop in transport and communication costs, while fuel inflation slightly increased to 2.7% from 2.6%.

The report highlights that substantial deflation in vegetables and pulses, along with easing cereal prices, has provided considerable downward pressure on inflation. According to Crisil Intelligence’s Thali Index, the costs of vegetarian and non-vegetarian thalis have decreased by 14% and 13% year-on-year, respectively, due to lower prices for vegetables and poultry.

Looking ahead, the report anticipates another cut in the repo rate this fiscal year. A total reduction of 100 basis points has already been implemented, and with sufficient liquidity in the market, this has facilitated a swift transmission of benefits. The significant drop in retail inflation is expected to enhance household purchasing power, especially among lower-income groups, and may create opportunities for further easing of monetary policy, which would favor interest-sensitive consumption sectors.