Economic Survey 2025: Food inflation to ease in fourth quarter of FY25

Mumbai: Food inflation is likely to soften in the fourth quarter of the current fiscal year on the back of strong rabi production, even as global uncertainties continue to pose risks, according to the Economic Survey 2024-25.

"Going forward, food inflation is likely to soften in Q4FY25 with the seasonal easing of vegetable prices and kharif harvest arrivals. Good rabi production is likely to contain food prices in the first half of FY26. Adverse weather events and rise in international agricultural commodity prices, however, pose risks to food inflation," said the survey. "However, risks remain on account of significant global political and economic uncertainties," it added.

Monsoon saviour

According to the survey, food inflation pressures could ease on account of the normal southwest monsoon last year that ensured sufficient water for irrigation during the rabi season. Kharif foodgrain production is also expected to increase by 5.7%, led by rice and tur dal, as per the first advanced estimates of agricultural production for FY25.

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The survey’s projection on food inflation is in line with that of the Reserve Bank of India, which also expects food inflation to start easing from the fourth quarter.

Retail inflation softened to 4.9% in the first half of FY25 from 5.4% in FY24. While this decline is primarily on account of lower core inflation, rising food prices have kept headline inflation at the upper end of the RBI’s tolerance band of 2-6%.

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Food inflation has been driven by factors such as supply-chain disruptions and disruptive weather. It rose to 8.4% in FY25 (April-December 2024) from 7.5% in FY24, primarily due to a few items such as vegetables and pulses.

Headline inflation

The RBI expects headline inflation to ease to 4.2% in FY26, assuming a normal monsoon and no further external or policy shocks. In the most recent monetary policy statement, then RBI governor Shaktikanta Das noted that high inflation affects India’s gross domestic product (GDP). The monetary policy committee (MPC) argued for durable price stability to ensure higher growth. 

With inflation hovering above 5%, the rupee depreciating and growth slowing, the MPC chair by new RBI governor Sanjay Malhotra faces a dilemma over the timing of its rate cut.

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