Retail relief ahead: Bank of Baroda report sees CPI easing to 3.1% in FY26; GST cuts to soften prices further

Prices of daily essentials may ease further in the coming months as recent cuts in GST begin to reflect in actual numbers, Bank of Baroda (BoB) said in its latest report.

According to news agency ANI, the bank projects retail inflation, measured by the Consumer Price Index (CPI), to average 3.1% in FY2025-26, with a possibility of dipping even lower.



“We may see episodes of disinflation in the coming days as government support through lower indirect tax rates is likely to be passed on to actual numbers sooner, if not later. We expect CPI in FY26 to settle at 3.1 per cent, with risks tilted to the downside,” the report noted.
The disinflationary trend was already visible in August 2025, when consumer inflation came in at 2.1% year-on-year, down from 3.7% in August 2024, driven largely by a sustained fall in food prices, as per ANI.

The food price index remained in deflation for the third consecutive month, falling by 0.7% in August 2025 compared with a 5.7% rise in the same month last year.

Much of the comfort came from lower prices of vegetables and pulses, while other categories such as fruits, meat, fish, and eggs also softened.

Even oilseeds, which had earlier been sticky due to higher international prices, showed moderation, though domestic prices need monitoring as sowing has slowed.

On a month-on-month basis, the consumer food price index rose 0.8% seasonally adjusted in August, according to the report.

BoB’s in-house Economic Condition Index (ECI) stood at -0.9% for the first 10 days of September, signalling continued price softening. The report highlighted that even weather-related disruptions had not impacted supplies of key vegetables like tomatoes, onions and potatoes.

Meanwhile, official data from the ministry of statistics and programme implementation showed retail inflation at 2.07% in August 2025, slightly higher than July’s 1.55%, which had been the lowest since June 2017. Food inflation was provisionally at -0.69% year-on-year, with both rural (-0.70%) and urban (-0.58%) segments in deflation.

The ministry added that Kerala, Karnataka, Jammu and Kashmir, Punjab and Tamil Nadu recorded the highest year-on-year inflation in August. Inflation, however, remains comfortably within the Reserve Bank of India’s 2-6% target band, ANI reported.

The RBI, which cut its benchmark repo rate in February 2025 after nearly five years, had revised its 2025-26 inflation forecast down from 4% to 3.7%, assuming a normal monsoon.