Food inflation in India is likely to remain high in the coming months, while the Reserve Bank of India (RBI) may take action to control retail inflation by increasing the rate by 25 basis points in December.
Factors Influencing the Food Inflation Forecast
According to a recent report, the outlook for food inflation is largely dependent on the Rabi crop (winter crops), as the Kharif season (summer crops) has faced shortages. Low water reserves and soil moisture conditions may also impact Rabi crop production and create upward risks for food prices.
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Products such as grains, pulses, coarse cereals, and edible oils are among the food items that may face upward price pressure. The distribution of rainfall across the country during the monsoon season indicates that these products may be most affected by the current conditions.
Impact of Inflation on the Economy and Forecasts
The report states that food inflation is likely to remain high in the next quarter, and given the high base, this figure will decrease in the second half of the financial year 2027. Retail inflation in India rose to 6.08 percent in October compared to the previous year, crossing the RBI's upper tolerance limit for the first time in two years.
This rate has increased from 5.54 percent in September, primarily due to food inflation and adverse base effects. Food inflation in October rose to 8.9 percent, up from 7.7 percent in September. Additionally, core inflation (excluding gold and silver) has reached 4.5 percent.
Considering that about 53 percent of the consumer price basket is now experiencing inflation above 4 percent, inflationary pressures are becoming increasingly widespread. The report also indicates that nearly 70 percent of food items have recorded inflation above 4 percent.
ICICI Bank has revised its CPI inflation forecast for the financial year 2027 to 5.2 percent and for the financial year 2028 to 5.0 percent. The bank expects the RBI to raise rates by 25 basis points in December and February to bring inflation to target levels in the second half of the financial year 2028.
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