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According to a recent report by the Bank of Baroda (bob), India's retail inflation in the first quarter of FY26 is expected to undershoot the Reserve Bank of India's (RBI) forecast of 2.9 per cent.
The report suggested that the June 2025 high-frequency price data has also been comforting, offering further signs of price stability. It said, "We expect CPI in Q1 to undershoot RBI's 2.9 per cent forecast as Jun'25 high-frequency price data is also comforting." However, the report cautioned that inflation trends must be closely monitored, particularly regarding Tomato, Onion, and Potato (TOP) prices. Some buildup in these food items has been observed, although the increase remains gradual. A significant relief in inflation during May 2025 came from the food category. Vegetables, pulses, cereals, and protein-based food items largely drove the moderation in prices. The report also mentioned that this easing in food inflation is attributed to improved supply dynamics and the government's focused policies on supply management. While food inflation appears under control, the report highlighted that core inflation could remain somewhat sticky. This is due to a pickup in demand, supported by the RBI's jumbo rate cut and the ample liquidity provided in the system. The report noted that going forward, some stickiness in core inflation is likely, in line with rising government expenditure and improved rural demand. The increase in Minimum Support Prices (MSP) and relatively stable food prices will also play a role in maintaining this trend. On the external front, the report pointed to some volatility in global commodity prices, especially crude oil, due to ongoing geopolitical tensions. However, it added that a major price surge is unlikely as global demand remains weak, which is evident from high-frequency data across major economies. The report added that the inflation outlook for the year remains favourable, provided the monsoon progresses well. Additionally, clarity on global tariff policies, especially with the upcoming July 2025 deadline, is expected to provide more direction to the inflation trajectory. (ANI)
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