Inflation expected to stay below 4 per cent for next two quarters: CareEdge

India’s headline inflation is expected to stay below 4 per cent for the next two quarters, driven by easing food prices and a favourable base effect. CPI inflation fell to 2.1 per cent in June, the lowest since January 2019, according to CareEdge Ratings

New Delhi: Headline inflation in India is expected to stay below the Reserve Bank of India’s (RBI) 4 per cent target over the next two quarters, supported by a favourable base effect and muted food prices, a new report has said.

The data compiled by CareEdge Ratings said the recent moderation in inflation has been largely driven by easing food prices, with CPI inflation falling to 2.1 per cent in June 2025 — the lowest level since January 2019.

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The report noted that while inflation is likely to remain low in the near term, it could start rising from the third quarter and cross the 4 per cent mark in the last quarter of the current financial year as the base effect fades.

For FY26, the agency expects CPI inflation to average around 3.1 per cent, which is lower than the RBI’s projection of 3.7 per cent. “However, due to the low base in FY26, inflation is projected to rise to about 4.5 per cent in FY27,” the report said.

The sharp fall in June inflation was led by deflation in food and beverages, including vegetables, pulses, spices, and meat. However, prices of edible oils and fruits continued to show double-digit inflation.

While elevated edible oil prices remain a concern due to India’s dependence on imports, the report said the recent cut in customs duty and healthy kharif sowing should help ease pressures in the coming months. The report said the RBI, having already frontloaded rate cuts and ensured surplus liquidity, is likely to hold rates in the upcoming August monetary policy meeting.

The central bank may adopt a wait-and-watch approach to assess the impact of earlier rate cuts, especially with the US Federal Reserve maintaining a hawkish stance and the dollar strengthening.
Despite global headwinds, India’s external position remains strong, with foreign exchange reserves at $695 billion and the current account deficit projected at just 0.9 per cent of GDP in FY26.

Healthy services exports are expected to continue supporting the external sector, the report said.