Food Price Outlook: Monsoon and Sowing Conditions to Keep Inflation in Check in H2FY26; Adverse Base Effect May Impact FY27 Rates
A recent report from ICICI Bank's Global Markets sector highlights a potential challenge for India's food inflation in the upcoming fiscal year. The report suggests that while better monsoon rains and improved sowing conditions are expected to keep food inflation under control in the second half of FY26, an 'adverse base' effect could lead to higher food inflation in FY27.
The 'base effect' refers to the impact of price levels in the same period of the previous year on the current year's inflation. According to the report, higher rainfall and sowing in H2FY26 are positive signs, but they might create an 'adverse base' for the following year. This means that the low inflation levels expected in H2FY26 could result in higher inflation in FY27 when compared to the previous year's prices.
As per news agency ANI, the report states, 'Higher rainfall and sowing bode well for the outlook in H2FY26, but an adverse base should push food inflation higher next year (FY27).'
This outlook is particularly relevant as India's wholesale inflation has been easing, reaching its lowest point in over two years. In October, wholesale inflation continued to contract, primarily due to a sharp decline in primary food articles. Vegetable prices remained stable due to steady supplies and favorable weather conditions. Additionally, cereals, pulses, spices, and fruits also experienced price declines. Month-on-month food prices showed minimal changes, indicating that the earlier disinflation trend is stabilizing.
The report further emphasizes that corrections in key high-frequency items like tomatoes, onions, and certain grains have significantly contributed to lowering wholesale food inflation this year. Fuel inflation also remained negative, supported by lower global crude oil prices compared to the previous year. While some petroleum products saw sequential increases, the overall fuel and power index remained subdued. Inflation in manufactured products also moderated due to easing prices in metals and industrial inputs.
However, the report warns that certain segments, such as jewelry, tobacco, pharmaceuticals, and select fabricated metals, are showing firming trends. This suggests that global commodity movements could exert upward pressure on prices in the coming months, potentially impacting inflation.
