India's Food Inflation Outlook: Monsoon Boost for FY26, Adverse Base Effect for FY27; Wholesale Prices Ease

The outlook for India's wholesale inflation suggests a bifurcated trend for food prices. In the second half of the current financial year (H2 FY2026), above-normal monsoon rains and improved agricultural sowing conditions are expected to support a stable food inflation trajectory. This means food prices are likely to remain manageable, benefiting consumers and businesses.

However, the report from ICICI Bank's Global Markets warns of an "adverse base effect" that could push food inflation higher in the following fiscal year, FY2027. This phenomenon occurs when current low inflation rates make future price increases appear larger in percentage terms because the comparison is made against a particularly low price level from the previous year.

This projection comes as India's wholesale inflation recently dipped to its lowest level in over two years. The decline has been significantly influenced by a sharp fall in primary food articles, including vegetables, cereals, pulses, spices, and fruits, thanks to steady supplies and favorable weather. On a month-on-month basis, food prices have shown signs of stabilization after recent steep decreases.

Fuel inflation also remains in negative territory, supported by lower global crude oil prices compared to the previous year. Inflation in manufactured products has moderated, reflecting easing price pressures in metals and industrial inputs. Nevertheless, some categories like jewellery, tobacco, and pharmaceuticals have seen sequential price firming, indicating potential upward pressure from global commodity price movements.

Impact

This news is important for investors as inflation directly influences interest rate decisions by the Reserve Bank of India, corporate profitability, and consumer demand. Stable food inflation is generally positive for the economy, but a future rise could lead to tighter monetary policy, impacting growth.

Rating: 7/10

Difficult Terms:

• Base Effect: When this year's inflation rate appears higher or lower simply because prices in the same period last year were unusually high or low.
• Wholesale Inflation: The rate at which prices of goods sold in bulk (wholesale prices) change. It indicates inflationary pressures at the producer or wholesale level.
• Disinflation: A slowdown in the rate of price increases; inflation is still positive but decreasing.
• Primary Articles: Raw materials, including food items and minerals, before they are processed.
• Sequential Increases: Price changes observed from one month to the next.