Food Price Outlook: Monsoon and Sowing Conditions to Keep Inflation in Check in H2FY26, but FY27 Rates May Rise
A recent report from ICICI Bank's Global Markets sector highlights a potential challenge for India's food inflation in the upcoming fiscal year. The report suggests that while better monsoon rains and improved sowing conditions are expected to keep food inflation under control in the second half of FY26, an "adverse base" effect could lead to higher food inflation in FY27.
The "adverse base" effect refers to the impact of price levels in the same period last year, which can make current inflation appear unusually high or low. According to the report, higher rainfall and sowing are positive signs for the upcoming half, but they may also create a higher baseline for comparison in the following year, potentially pushing food inflation upwards.
This outlook comes at a time when India's wholesale inflation has been easing, reaching its lowest point in over two years. In October, wholesale inflation continued to contract, primarily due to a sharp decline in primary food articles. Vegetable prices remained stable due to steady supplies and favorable weather, while cereals, pulses, spices, and fruits also saw price drops. Month-on-month food prices remained steady, indicating that the earlier disinflation trend is stabilizing.
The report further notes that corrections in key high-frequency items like tomatoes, onions, and certain grains have significantly contributed to lowering wholesale food inflation this year. Fuel inflation also remained negative, supported by lower global crude oil prices compared to the previous year. While some petroleum products saw sequential increases, the broader fuel and power index remained subdued.
Additionally, inflation in manufactured products has moderated due to easing prices in metals and some industrial inputs. However, specific segments such as jewelry, tobacco, pharmaceuticals, and select fabricated metals showed strengthening trends, suggesting that global commodity movements could exert upward pressure on prices in the coming months.
