Food inflation set for relief in H2 FY26, but next year could bring a fresh surge: Report

Above-normal monsoon rains and better sowing conditions are expected to support the benign trajectory of food inflation in the second half of FY2026. However, according to ICICI Bank's Global Markets Sectoral Update on the wholesale inflation outlook, food inflation is likely to rise next year (FY27) due to an unfavourable base.

Understanding the Base Effect on Inflation

Base effect refers to the fact that inflation this year appears higher or lower simply because prices were unusually high or low during the same period last year. "Higher rainfall and sowing bode well for the outlook in H2FY26, but an adverse base should push food inflation higher next year (FY27)," the report added.

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Wholesale Inflation Falls to Two-Year Low

This estimate has been made at a time when wholesale inflation in India has fallen to its lowest level in more than two years. Wholesale inflation declined further in October, mainly due to a sharp fall in primary food articles.

Vegetable and Food Prices Show Signs of Stabilisation

Vegetable prices continued to decline due to stable supply and favourable weather, while prices of cereals, pulses, spices and fruits also declined. Food prices remained broadly unchanged on a month-on-month basis, suggesting that the sharp deflation of recent months is now stabilising.

Primary Articles Continue to Contract

The broader primary articles category recorded another month of contraction, continuing the streak of negative prints amid weak pricing across food and non-food components.

High-Frequency Items Drive Sharp Decline in Food Inflation

The report said that improvement in prices of several high-frequency items like tomatoes, onions and select cereals has led to a significant decline in wholesale food inflation this year.

Fuel Inflation Stays Negative on Lower Crude Prices

Fuel inflation remained in negative territory, supported by lower global crude oil prices compared to last year. While some petroleum products witnessed a sequential increase, the overall fuel and power index remained subdued, contributing to the softening trend in core wholesale prices.

Manufactured Products Show Easing Pressures but Some Volatility

Inflation in manufactured products also eased, reflecting easing price pressures in metals and several industrial inputs. However, sequential strength was observed in some categories, including jewellery, tobacco, pharmaceuticals, and select manufactured metals, suggesting that volatility in global commodity prices could exert some upward pressure going forward.

With ANI Inputs