MUMBAI: Retail inflation is unlikely to cause any major headaches for the economy and is likely to stay benign in the next fiscal—at under 4%— as well, supported by favourable supply-side conditions and the gradual pass-through of GST rate cuts, says the Economic Survey.
Citing RBI projections, the survey said inflation is likely to average 2% this fiscal, and may not exceed 4% in the coming fiscal as well.
The Reserve Bank has forecast the fourth quarter inflation path at 2.9% for this fiscal after Q3 printed in at 0.6% and for FY27, it is projected at 3.9% in Q1 and 4% in Q2.
In December, inflation averaged 1.3%, below the RBI's 2-6% band for a fourth consecutive month. It had hit a multidecadal low of 0.25% in August primarily due to the persistent deflation in food prices, which began seven months back, with the December reading at -2.71%.
"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," said the Survey tabled in Parliament by the finance minister Thursday.
On the new Consumer Price Index (CPI), it said the new series will have implications for inflation assessment and warranted careful interpretation of price dynamics.
Starting February 12, the CPI series will shift to a new 2024 base year, 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.
Following the GST rate cuts, average prices declined 3.6% 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% on average.
Global uncertainty has emerged as the single biggest concern for economists heading into the FY27 budget, overtaking domestic inflation and fiscal risks.
Following steep fall in inflation, the RBI has cut rates by 125 basis points since the start of 2025, bringing the policy rate to 5.25% and economists are pencilling in another rate cut in the February meeting if the Budget does not surprise on the borrowing side.