Inflation could dip to 2% or below by July,

By Fatima | Published on June 14, 2025

Businesss / June 14, 2025

Inflation could dip to 2% or below by July,

An SBI Research note has stated that the inflation footprint could be more benign than what Reserve Bank of India has forecast on June 6. However, the RBI governor had cautioned against external shocks, which could not be predicted.

Kolkata:

India is passing through a sweet spot on the retail inflation front. While retail inflation has dipped to a more than six-year low in May at 2.82%, in a note on Friday, June 13 SBI Research paper said that the level of retail inflation will be less than what RBI forecast just a week ago.

SBI Research Report says that they expect the retail inflation to remain less than 4% — the guidance level for the central bank — throughout the entire financial year.

Low inflation has formed the bedrock on which RBI has built its policy of lowering interest rates and infusing liquidity in the system. It is all leading to a lowering of interest rates on personal loans, home loans, car loans as well as lowwer EMIs on past loans. Interest rates on fixed deposits, however, are also decreasing.

The RBI figures:

Incidentally, RBI governor Sanjay Malhotra said on June 6, while briefing about the robust Repo Rate cut by 50 basis points, that the view of the RBI was that of benign inflation. He scaled down the CPI-based inflation forecast for the current fiscal from 4% to 3.7%. Disaggregating the inflation figures, Malhotra said the inflation footprint in various quarters could be 3.9% in Q1, 3.4% in Q2, 3.9% in Q3 and 4.4% in Q4. SBI Research has now put it at 3.3%-3.5%.

Incidentally, while the retail inflation for April was 3.2%, that for May has come down below 3% and stood at 2.82%. The retail inflation depends critically on food inflation which dipped to a multi-year low of 0.99% in May. Food items weigh nearly 48% in the retail inflation basket and a low food inflation helps the retail inflation to stay benign.

“Headline inflation sans a la tomatina could rapidly descend towards 2% or below by July. We expect CPI inflation average at 3.3-3.5% for FY26,” wrote SBI Research in a note. Deciphering the statewise inflation trends, the number of state/UTs above 4% has declined to 6 in May 2025, as against 32 states/UT that had inflation above 4% in October 2024, the note mentioned.

“While till Q3 FY26, we expect CPI inflation to remain less than 4%, it may only increase in the last quarter of the current fiscal. We expect average CPI inflation for FY26 would be around 3.3%-3.5% (RBI:3.7%) as against FY25 average of 4.6%,” SBI Research mentioned in the note.