Inflation likely to align with RBI's projection in Q1: BoB report

India Gazette

4 days ago

New Delhi [India], July 5 (ANI): Inflation is expected to remain in line with the Reserve Bank of India's (RBI) projections in the first quarter (Q1) of Financial Year FY26, driven by a favourable statistical base and continued deflation in essential commodities, according to the latest report by Bank of Baroda.
Taking the influencing factors into consideration the RBI policy projects CPI inflation for the financial year 2025-26 at 3.7 per cent, with Q1 at 2.9 per cent; Q2 at 3.4 per cent; Q3 at 3.9 per cent; and Q4 at 4.4 per cent
The BoB Essential Commodities Index (BoB ECI) remained in deflationary territory in June 2025, declining by -1.8 per cent year-on-year (YoY), compared to a -0.6 per cent drop in May 2025. This marks the third consecutive month of deflation, largely driven by sharp price corrections in vegetables and pulses, buoyed by improved production and favourable supply conditions.
'The outlook for inflation remains comforting for now, as it has the handholding of a favourable statistical base. This is likely to continue in Jul'25 as well. We expect to settle CPI to settle at 2.6 per cent in Jun'25,' the report noted, suggesting the RBI will have some room to focus on growth-oriented measures in the near term.
Vegetables under the TOP (Tomato, Onion, Potato) category led the deflation trend. Retail prices for onions and potatoes dropped significantly by -26.1 per cent and -20.3 per cent respectively in June, while tomatoes fell at a slightly slower pace of -24 per cent. Among pulses, Tur/Arhar recorded the steepest annual decline of -23.8 per cent, marking the fourth consecutive month of double-digit deflation. Other pulses such as Urad, Masoor, and Moong also showed consistent downward trends, supported by improved sowing in the ongoing Kharif season.
Cereals, particularly rice, also saw retail prices soften, falling by -5.1 per cent in June. Prices of miscellaneous items like salt and jaggery remained largely stable, while edible oils continued to remain elevated, albeit supported by favourable international pricing trends.
On a month-on-month (MoM) basis, the BoB report noted a modest uptick of 0.6 per cent in June. However, the seasonally adjusted MoM figure actually declined by -0.7 per cent, indicating that much of the sequential rise was seasonal in nature.
Tomato prices rose by a sharp 36.1 per cent in June compared to May, marking the highest monthly gain since October 2024 -- a result of early monsoon impact and typical seasonal price shifts. Although onion prices remained relatively stable, they witnessed a much softer sequential decline of -0.4 per cent compared to -9.8 per cent in May.
The report cautioned that June and July typically mark the seasonal reversal in TOP prices, with an upward correction in prices expected. It emphasised the need for better supply chain infrastructure, including cold storage and more localised vegetable clusters, to help moderate price volatility going forward.
With inflation well below the RBI's upper tolerance band and supply-side pressures largely under control, the central bank appears to have a temporary breather, allowing it to stay focused on stimulating growth in the months ahead, the report added. (ANI)