Will CPI inflation stabilize at 3.1% in FY26 due to GST reforms?
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Synopsis
As India braces for economic changes, a recent report suggests that retail inflation may settle at 3.1% in FY26. This decline is expected to stem from decreasing food prices and the impact of GST reforms, promising relief for consumers amidst fluctuating economic conditions.
Key Takeaways
- Projected CPI inflation for FY26 is 3.1%.
- Influenced by falling food prices.
- GST reforms are playing a significant role in the economic landscape.
- Food inflation has declined for three consecutive months.
- Potential rate cuts in future may be challenging.
New Delhi, Sep 13 (NationPress) The forecast for India's retail inflation suggests a stabilization at 3.1 percent in FY26, spurred by declining food prices and the impact of recent GST rate adjustments, according to a report.
The Bank of Baroda (BoB) indicates that the Indian economy might experience phases of disinflation in the near future, as government measures, including lower indirect tax rates, are anticipated to be reflected in consumer prices.
In August, CPI inflation rose to 2.07 percent, an increase from 1.61 percent in July, yet significantly lower than the 3.7 percent recorded a year prior. Food prices have witnessed a decline for the third month in a row, dropping by 0.7 percent year-on-year, mainly due to reduced costs of vegetables, pulses, and spices. Enhanced sowing practices and better rice and pulse arrivals, along with favorable supply conditions, are expected to keep food inflation low.
The bank noted that headline CPI is benefiting from manageable food inflation. With improved sowing conditions, especially for rice and pulses, a favorable monsoon, and adequate reservoir levels, a further decrease in food inflation is likely.
Moreover, the transition of many food and beverage items, along with core inflation components, to lower GST brackets is expected to contribute to a further drop in inflation, as per the report.
Food inflation has begun to rise from extremely low levels, influenced by a statistical low-base effect, the report added. Food deflation improved to -0.7 percent in August from -1.8 percent in July.
Fuel and light inflation registered at 2.4 percent on a year-on-year basis, with a slight sequential increase attributed to rising kerosene prices.
Furthermore, a report by SBI Research indicates that a rate cut in October is unlikely, as the inflation print in August is marginally above the 2 percent threshold. Taking into account growth figures for Q1 and projected Q2 data, even a December rate cut seems challenging.
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Point of View
It is imperative to recognize the significance of this report from Bank of Baroda. The projected stabilization of CPI inflation at 3.1% in FY26, influenced by crucial GST reforms and food price dynamics, reflects a broader economic trend that impacts every Indian household. Our commitment remains with the nation, ensuring informed discussions around these pivotal economic indicators.
NationPress
14/09/2025
Frequently Asked Questions
What is the projected CPI inflation for FY26?
The projected CPI inflation for FY26 is 3.1% according to the Bank of Baroda report.
What factors are contributing to the decline in inflation?
The decline in inflation is primarily driven by falling food prices and the effects of recent GST rate reductions.
How has food inflation changed recently?
Food inflation has decreased for the third consecutive month, with a year-on-year decline of 0.7% in August.
Will there be any rate cuts in the near future?
A report by SBI Research suggests that a rate cut in October is unlikely due to the inflation print being slightly above the 2% mark.
How does GST impact inflation?
The transition of many food and beverage items to lower GST brackets is expected to contribute to further decreases in inflation.
