New Delhi: India's Consumer Price Index (CPI) inflation is projected to remain at 2.2% in FY26, according to a recent report by SBI Research. This is notably lower than the Reserve Bank of India's (RBI) forecast of 2.6%. The SBI report attributes this moderation primarily to a decline in food and beverage prices.
The report highlights that CPI inflation eased to a 99-month low of 1.54% in September 2025, largely driven by falling food and beverage costs. Since October 2024, the decline in inflation has been mainly due to the food group's contribution shifting from a significant positive to a negative. While food prices have seen a modest seasonal increase since May, this has been offset by favorable base effects, keeping year-on-year inflation on a downward trajectory. Core CPI, excluding gold, is currently at 3.28%.
SBI suggests that the RBI, with its primary mandate of inflation targeting, risks missing its objective if it focuses too heavily on market volatility, despite clear signs of a steady deceleration in inflation. The report argues that long-term inflation data appear detached from the central bank's forecasts.
The report suggests that the RBI would be better off leaning towards a rate cut, rather than being overly cautious and falling behind the curve, especially given the uncertainty among market participants regarding the central bank's next move. SBI anticipates inflation to be around 0.45% next month, further strengthening the case for decisive policy action. The report also projects inflation for FY27 to remain stable at 3.7%, indicating continued price stability in the coming years.
Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor at SBI, stated that being the collective voice of markets and people, SBI believes the RBI MPC would consider the changing dynamics.
Furthermore, the report notes that vegetable prices have remained in negative territory, with continued deceleration in pulse prices and declines in spices in September 2025. Fruits, and oil and fat CPI also declined. Conversely, CPI inflation increased for personal care and effects due to higher gold prices, while housing CPI saw a modest increase in September 2025. The continuous decline in food inflation for 11 consecutive months up to September 2025 is unprecedented in the current CPI series, marked by two distinct phases.
Another report from Bank of Baroda projected the CPI to settle at 2.8 per cent in FY26. Excluding gold and pan & tobacco, it is lower at 3.1 per cent.
