India Food Inflation Outlook: ICICI Bank Forecasts H2 FY26 Control, Warns of FY27 Rise

ICICI Bank's Global Markets sectoral update suggests that food inflation in India is likely to stay controlled during the second half of the ongoing fiscal year (H2 FY26). This positive outlook is attributed to favorable monsoon rains and improved conditions for sowing crops. However, the report raises a concern for the following fiscal year, FY27, by warning of a potential increase in food inflation due to an "adverse base" effect.

A base effect refers to how inflation figures are perceived. If prices were very low in the same period last year, even a small increase in prices this year can make inflation look unusually high. Conversely, if prices were high last year, current price stability can make inflation look very low or even negative (disinflation).

The current scenario shows India's wholesale inflation has reached its lowest point in over two years, even slipping into contraction territory in October. This disinflation has been significantly led by a sharp fall in primary food articles. Vegetable prices have eased due to steady supplies and good weather, while cereals, pulses, spices, and fruits also recorded price declines. Month-on-month food prices have been broadly stable, indicating a stabilization after earlier sharp drops.

The broader category of primary articles has also seen a contraction for several months, influenced by both food and non-food items. The report specifically highlights that corrections in prices of key high-frequency items like tomatoes, onions, and certain grains have been instrumental in reducing wholesale food inflation this year.

Fuel inflation has also remained in negative territory, partly due to lower global crude oil prices compared to the previous year. While some petroleum products saw sequential price increases, the overall fuel and power index remained subdued. Inflation in manufactured products has also moderated, with prices of metals and some industrial inputs decreasing. However, certain segments like jewellery, tobacco, pharmaceuticals, and specific fabricated metals have shown upward price trends, suggesting that global commodity price movements might exert some upward pressure in the coming months.

Impact

This news has a moderate impact on the Indian stock market (Rating: 6/10). Inflationary pressures, especially in food, directly affect consumer spending power and corporate costs. Changes in inflation can influence the Reserve Bank of India's monetary policy decisions, such as interest rates, which in turn impact borrowing costs for businesses and investor sentiment. While the short-term outlook appears positive for H2 FY26, the warning for FY27 necessitates investor vigilance.

Difficult Terms Explained:

Base Effect: The impact on a current inflation rate caused by comparing it to a period with unusually high or low inflation in the past. For example, if food prices were very low in one month last year, the current year's food inflation will appear higher even if prices have only risen slightly.