Inflation in FY27 likely to be higher than FY26, but not a concern: Economic Survey 2026

Risks from currency fluctuations, surge in metal prices and global uncertainties warrant ongoing monitoring and adaptive policy responses

3 min readJan 29, 2026 02:18 PM IST

Inflation eased further to 0.3 per cent in October 2025—the lowest reading in the current CPI (2012=100) series. (Image generated using AI)

Domestic inflation is likely to be higher in FY27 compared to FY26 but it is unlikely to be a concern, the Economic Survey 2025-26, tabled in Parliament on Thursday said.

In its December 2025 monetary policy, the Reserve Bank of India (RBI) revised its inflation estimate for FY26 from 2.6 per cent to 2 per cent, owing to a good kharif harvest and healthy rabi sowing. It has also projected headline inflation for Q1 and Q2 of FY27 at 3.9 per cent and 4 per cent, respectively. The International Monetary Fund (IMF) has projected an inflation rate of 2.8 per cent in FY26 and 4 per cent in FY27.

“India’s inflation rate – headline and core excluding precious metals – will likely be higher in FY27 than in FY26. However, we believe it is unlikely to be a concern,” the Survey stated.

Over the past four years, average retail inflation, as measured by the Consumer Price Index (CPI), has followed a clear downward trajectory, declining steadily from 6.7 per cent in the financial year (FY) 2022–23 to 1.7 per cent in 2025–26 (up to December).

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The pace of disinflation was particularly pronounced in the current year, given that inflation was at 4.6 per cent in 2024–25. In fact, April-December 2025 marked the lowest average inflation rate in the current CPI series. This moderation enabled the RBI to reduce the repo rate by 125 basis points (bps) in 2025 to 5.25 per cent.

Inflation eased further to 0.3 per cent in October 2025—the lowest reading in the current CPI (2012=100) series. This disinflation was driven primarily by the food items, reflecting favourable weather conditions and higher production that boosted supply.

In contrast, core inflation—which excludes volatile components such as food and fuel—remained relatively stable and has shown a modest uptick during this period, rising from 3.8 per cent in October 2024 to 4.62 per cent in December 2025.

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“The apparent divergence between headline and core inflation creates an impression of sticky core inflation, suggesting that underlying price pressures are firming even as headline inflation softens,” the Survey noted.

The average reading of core inflation indeed shows an increase from 3.5 per cent in FY25 to about 4.3 per cent in FY26 (or a rise from 3.19 per cent in April 2024 to 4.62 per cent in December 2025), indicating persistence in non-food, non-fuel inflation.

“Looking ahead, the outlook remains favourable, with projections of inflation staying within target ranges, supported by strong agricultural output, stable global commodity prices, and continued policy vigilance,” the Survey observed.

However, risks from currency fluctuations, base metal price surges and global uncertainties persist, warranting ongoing monitoring and adaptive policy responses, it added.

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The government has mandated the RBI to target inflation at 4 per cent in the medium term in a band of 2-6 per cent.