India's Consumer Price Index (CPI) inflation is projected to settle at 4.5 per cent in July 2026, with risks skewed to the upside as food price pressures spread across essential commodities, according to a report released by Bank of Baroda on Thursday, 6 August 2026. The forecast signals that while inflation remains within a manageable range, the breadth of price increases warrants close monitoring.

Food Inflation Remains Broad-Based

The Bank of Baroda report flagged that inflation is broad-based across essential commodities, with onions, edible oils, rice, and pulses among the key drivers. The bank's proprietary Essential Commodities Index (BoB ECI) rose by 4.1 per cent on a year-on-year basis in July 2026 — its sharpest increase since the index was launched. In the first five days of August 2026, the build-up accelerated further to 5.4 per cent, pointing to sustained pressure in the near term.

On the vegetable front, arrival statistics for TOP crops — tomato, onion, and potato — have offered some comfort, even as onion prices remain sticky. International food prices, particularly for edible oils, have softened, providing a partial offset.

Core Inflation Expected to Stay Contained

Core inflation, which strips out food and fuel, is expected to remain relatively subdued at around 4 to 4.1 per cent. A key factor is the softening of international gold prices, which fell by 3.7 per cent on a month-on-month basis, easing pressure on personal care and effects sub-categories. Core inflation excluding precious metals is also expected to remain muted for now, the report noted.

However, the bank cautioned that higher input costs could generate upside pressure on core inflation going forward, particularly as corporate earnings transcripts for Q1 indicate companies are beginning to pass through cost increases to end consumers amid robust demand conditions.

Monsoon and Kharif Sowing Offer Relief

The report cited favourable monsoon progress as a mitigating factor, with 63 per cent of states receiving normal rainfall. Area sown under major Kharif crops as of 31 July 2026 — excluding oilseeds and sugarcane — remained above the corresponding period of the previous year, suggesting the agricultural supply outlook is broadly supportive.

This combination of improved vegetable arrivals and adequate monsoon coverage is expected to cap the worst-case food inflation scenarios in the months ahead, according to the report.

Upside Risks and What to Watch

Despite these positives, Bank of Baroda warned that upside risks to the 4.5 per cent CPI estimate persist. The primary concerns are the broadening of food inflation beyond vegetables into staples such as rice and pulses, and the potential for corporate cost pass-throughs to lift core readings. The trajectory of the BoB ECI in August — already running at 5.4 per cent in the first five days — will be a critical indicator of whether July's elevated readings are a peak or a prelude to further acceleration.

With the Reserve Bank of India (RBI) closely tracking inflation dynamics ahead of its next monetary policy review, the July CPI print — due for official release — will be watched for any signal that could influence the rate-setting trajectory.