Inflation May Stay Low At 2.5 Per Cent Thanks To Bumper Crops, Healthy Rainfall: Report

As per the report, a high base effect from the past three years, coupled with robust cereal production, is expected to keep food inflation in India subdued for an extended period.

The area sown under rice, pulses, and cereals has increased compared to the same period last year.

Source : Freepik

Supported by favourable weather conditions, inflation is projected to average 2.5 per cent over the next six months. According to an HSBC report released on Monday, a high base effect from the past three years, coupled with robust cereal production, is expected to keep food inflation in India subdued for an extended period.

Core inflation, too, remains contained, led by a stronger Indian rupee, falling commodity prices, imported disinflation from China, and softer growth than a year ago, said HSBC Global Investment Research in its report. It said it expects inflation to average 3.2 per cent in FY26.

FY25 concluded on a strong note for India's granaries, with robust cereal production ensuring ample stock levels. This abundance is expected to help contain cereal inflation in the near term.

“But what matters a bit more is how rains, reservoir levels, and sowing will pan out in FY26,” said the report.

The rains had an early start (a week ahead of schedule), stalled thereafter (for two weeks), but the pace has picked up again.

Currently, rainfall levels are 9 per cent above normal, much higher than the rains received in the last three years. Region-wise, north-west and central India have received the maximum showers. The IMD expects the rains to cover the entire country in the next few days.

“Good rains benefit not only the summer sowing, but also help fill the reservoirs, which provide buffers in case the rains stall temporarily, and also support irrigation through the winter sowing season. Currently, reservoir levels are higher than last year's levels as well as normal storage levels, with the southern region doing particularly well,” the report stated.

It is still early days in the season, but sowing is progressing well thus far. As of June 20, the total area sown so far is about 14m hectares, which is 10 per cent higher than last year.

The area sown under rice, pulses, and cereals has increased compared to the same period last year. However, sowing of oilseeds has remained relatively weak so far.

According to the report, strong sowing activity augurs well for demand for agricultural workers and their wage outlook. Already, nominal wage growth for agricultural workers is trending at 8 per cent in April, versus 6.5 per cent in the last few months.

“Furthermore, the fall in inflation is helping boost real wages. And this, we believe, will boost mass consumption in the months ahead,” the report mentioned.

(This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)