In a positive development for the Indian economy, ratings agency Crisil has projected that headline inflation—which measures the rise in prices of all goods and services in the Consumer Price Index (CPI)—will average 3.5% in FY26, a sharp drop from 4.6% in FY25.
This decline is expected to be fueled by robust agricultural output, moderating crude oil prices, and supportive monetary policy measures.
Key Highlights of the Crisil Report
- Inflation Outlook: Average 3.5% in FY26, compared to 4.6% last fiscal.
- Agriculture Boost: Kharif sowing up 4% year-on-year as of August 8, ensuring food price stability.
- Oil Price Projection: Brent crude expected at $60–$65 per barrel, reducing non-food inflation pressures.
- Policy Outlook: Another repo rate cut anticipated this fiscal.
- Retail Inflation: Fell to 1.6% in July 2025, the lowest in nearly six years.
Why Food Inflation Is Expected to Stay Low
One of the primary factors behind the projected fall in headline inflation is healthy agricultural production. The 4% rise in kharif sowing suggests a strong harvest, which will help keep food prices in check. Since food inflation has a significant weight in the CPI basket, stability in this segment directly supports lower overall inflation.
Impact of Oil Prices on Non-Food Inflation
Non-food inflation is also likely to be subdued due to stable crude oil prices. Crisil’s report assumes Brent crude will average between $60–$65 per barrel in FY26, provided geopolitical tensions remain under control. This would limit transportation and manufacturing cost escalations, thereby keeping price pressures contained.
Monetary Policy and Interest Rates
The Reserve Bank of India (RBI) has already implemented a cumulative repo rate cut of 100 basis points so far. Crisil expects another cut this fiscal year. Adequate liquidity in the system is aiding faster transmission of rate cuts to borrowers, which supports economic activity.
Retail Inflation at a Multi-Year Low
India’s retail inflation has more than halved over the past year. From 2.1% in June 2025, it fell to 1.6% in July 2025, slipping below even the lower end of the RBI’s 2–6% target band. This decline not only strengthens household purchasing power but also gives policymakers more flexibility for growth-oriented measures.
Implications for the Economy
- Households: Lower inflation boosts real incomes, especially for lower-income groups.
- Businesses: Reduced input costs improve profit margins and encourage expansion.
- Government & RBI: More scope for monetary easing to stimulate growth.
- Investors: A stable inflation outlook creates a favorable environment for equity and bond markets.