Inflation unlikely to be a concern, says Economic Survey

Inflation Economic Survey 2026

• Inflation averaged 1.3 percent in December, below RBI's 2-6 percent target band
• Food prices have been in deflation for seven months, December at -2.71 percent
• Global uncertainty now viewed as top economic risk over inflation and fiscal issues

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Inflation is likely to stay benign in the coming financial year as well, supported by favourable supply-side conditions and the gradual pass-through of goods and services tax (GST) rate rationalisation, the Economic Survey 2025-26, tabled in Parliament on January 29, has said.

In December, India’s inflation averaged 1.3 percent, below RBI’s 2-6 percent band for a fourth consecutive month. Deflation in food prices persisted for seventh straight month, with the December reading at -2.71 percent.

"The trajectory of core inflation will need to be closely monitored in the context of monetary policy easing and potential upward pressures from global base metal prices,” the survey said, pointing to new CPI series having implications for inflation assessment and warranting careful interpretation of price dynamics.

Starting February 12, the CPI series will shift to a new 2024 base, with an updated consumption basket that includes more items and assigns a higher weight to non-food components, which will also help contain food related volatility.

Citing IMF data, the survey said inflation to average 2 percent this fiscal, may not exceed 4 percent coming fiscal as well.

The Reserve Bank of India expects inflation to average 2 percent for FY26 and 4 percent in the first half of FY27.

In a Moneycontrol poll conducted in October, economists pegged FY27 inflation at around 4 percent as well.

GST rate cuts have also started showing up in inflation.

An earlier analysis by Moneycontrol found that prices in consumer electronics and automobiles fell sharply between September and December, marking a far stronger pass-through than seen in recent years.

Average prices declined 3.6 percent over the September–December period. This is in contrast to the same months in 2024 and 2023, when prices in these categories barely moved, falling by just 0.3 percent on average.

Changing perceptions

Inflation has taken a backseat when it comes to perceptions as well.

Global uncertainty has emerged as the single biggest concern for economists heading into the FY27 Budget, overtaking domestic inflation and fiscal risks, according to a pre-Budget poll of 20 economists.

When asked about their primary concern for the economy, six respondents cited US and global headwinds, making it the most frequently flagged risk. These include trade protectionism, slowing global growth, and heightened geopolitical tensions.

CXOs seem less concerned about inflation as well.

Over half of the respondents were confident in policymakers controlling inflation below the RBI’s target rate of 4 percent, which also contributed to brighter outlook for cost of capital.

Over two-thirds of respondents expected the central bank to cut rates in FY27.

The RBI has cut rates by 125 basis points since the start of 2025, bringing the policy rate to 5.25 percent.

Economists have pencilled in another rate cut in the February meeting following the Budget announcement.