India’s headline inflation is projected to ease to an average of 4 per cent in the current financial year (FY26), compared to 4.6 per cent in FY25, according to a new report by Crisil released on Friday. The drop is backed by falling prices across food, fuel and core components of the inflation basket, along with positive agricultural trends and global oil stability.

CPI Hits 6-Year Low in May

Consumer Price Index (CPI)-based inflation fell to 2.8 per cent in May, the lowest since February 2019, from 3.2 per cent in April. Food inflation continued its downward trend, slipping to just 1 per cent in May, the lowest level since October 2021.

Among food items, pulses, vegetables and spices saw deflation, while inflation in cereals remained muted. The Crisil Thali Index showed a 6 per cent year-on-year drop in the cost of both vegetarian and non-vegetarian thalis, largely due to cheaper vegetables.

Fuel and Core Inflation Also Cool

Fuel inflation softened marginally to 2.8 per cent in May, down from 2.9 per cent in April. Core inflation which excludes volatile food and fuel components, declined to 4.18 per cent from 4.23 per cent. This remains well below its decadal average of 4.9 per cent, indicating easing underlying price pressures.

India’s food inflation outlook is further supported by a strong rabi season. The Ministry of Agriculture’s Third Advance Estimates project record wheat production. Ample grain supply is likely to help keep retail food prices stable in the coming months.

Monsoon Forecast Positive, But July Crucial

The India Meteorological Department (IMD) has forecast an above-normal monsoon at 106 per cent of the long-period average (LPA). A good monsoon is critical for kharif sowing and would help further ease food prices. However, Crisil cautioned that June rainfall was 34 per cent below normal, and July–August rains will be decisive.

Assuming geopolitical tensions remain contained, Brent crude oil prices are expected to stay in the $65–$70 per barrel range throughout the calendar year. Stable global oil markets are projected to help restrain non-food inflation.

One More Rate Cut on the Cards?

With 100 basis points of rate cuts already announced, the report suggests that the Reserve Bank of India (RBI) still has space for another policy rate reduction if inflation stays on course. Lower inflation provides policy flexibility to stimulate growth, especially if economic uncertainties emerge later in the fiscal