The report expects retail inflation to rise to 4.7 per cent in August, with improving monsoon conditions and stronger food supplies likely to ease price pressures later
India’s retail inflation could rise in the coming months, briefly crossing 6 per cent in October and November before easing to around 5 per cent in the fourth quarter of FY27. Consumer price inflation is expected to increase to 4.7 per cent in August from 4.45 per cent in July, according to an SBI Research report.
The report said improving monsoon conditions and resilient kharif sowing could help contain food inflation later in the year. The rainfall deficit has narrowed to around 13 per cent from nearly 40 per cent in June, with rainfall being surplus in July and normal in August.
Meanwhile, the area under kharif crops is around 2 per cent below the previous season despite below-normal rainfall in some major foodgrain-producing states. This indicates improved irrigation facilities across states.
Historical trends also suggest that inflation in the fourth quarter could be lower than current forecasts. The report expects stronger food supplies as the year progresses to reduce some of the upward pressure on consumer prices.
RBI Maintains Cautious Stance
The inflation outlook could also influence the Reserve Bank of India’s monetary policy decisions. RBI Governor Sanjay Malhotra has indicated that the central bank would need greater clarity on the inflation trajectory before recalibrating policy rates.
According to the minutes of the latest Monetary Policy Committee meeting, Malhotra said inflation was showing signs of normalisation from earlier benign levels and favoured waiting for further evidence before determining the future course of monetary policy.
SBI Research also flagged concerns over central bank communication, arguing that recent policy actions could carry greater weight than forward guidance. The report pointed to measures such as variable rate reverse repo operations (VRRR) and the foreign currency non-resident (FCNR(B)) deposit mobilisation window.
Global Market Risks Remain
The report also highlighted developments in US Treasury markets that could influence global financial conditions. It said measures by the US Federal Reserve to smooth the longer end of the US Treasury yield curve, including increased government debt repurchases, could have wider market implications.
Longer-term yields, including the benchmark 10-year yield, have declined. The decline comes amid expectations of a shift in US government debt supply between short- and long-term maturities.
For India, the near-term inflation outlook is likely to remain closely linked to food supply conditions and the monsoon. The Reserve Bank of India’s policy stance will also depend on how inflation evolves over the coming months.
