Well stocked granaries, low oil prices and longer-lasting drivers of core disinflation are likely to keep India inflation benign in FY27 as well, according to a new report.
HSBC Global Investment Research said in its report that “we do not forecast more RBI repo rate cuts, but the risks, if any, are of more easing, if growth disappoints”.
November CPI inflation came in at 0.7 per cent (on-year), in line with market expectation. Despite a sequential uptick of 0.4 per cent (on-month), the annual prints remained depressed due to base effect
Excluding gold, headline CPI remained in deflation (-0.1 per cent in November compared to -0.6 per cent previously).
“Deflation in food prices continued for a third month in annual terms. Sequentially, food prices rose 0.5 per cent on-month after two months of contraction. Vegetables prices picked up after falling for two straight months along with a rise in the prices of protein items like egg, meat and fish,” said the report.
“Gold prices kept core inflation elevated. With a weight of 1.1 per cent in the CPI basket and prices up 59 per cent in November, gold alone explains c63bp of CPI inflation. Our preferred definition of core (excluding food, energy, housing and gold) had been steady at 3.2 per cent y-o-y in 3Q25, and has now fallen to 2.5 per cent in November,” said the report.
Following a sharp fall in October, November goods inflation remained benign.
According to the report, strong cereal production, well-stocked granaries, and winter disinflation are likely to help keep a lid on food inflation over the near future.
“And it is not just easing food prices. The high base of last year is likely to keep CPI inflation soft for the next few months. Global oil prices, too, have been low, and cheaper imports from China will likely keep core inflation soft for a prolonged period,” it noted.
The RBI has lowered H1 FY27 inflation forecast by 50 bp (4.5 per cent previously to 4 per cent now).
“However our forecasts are 50 bp lower than the RBI’s (at 3.5 per cent). If we are correct, and the RBI eventually makes further downward adjustment to inflation, there would be space to ease further, if growth requires it,” said the report.
