India’s inflation outlook remains favourable, with price pressures expected to stay within the Reserve Bank of India’s tolerance band, even as global uncertainties, currency fluctuations and volatility in metal prices continue to pose risks, the Economic Survey 2025–26 said.

In chapter 5, titled “Inflation: Tamed and Anchored”, the Survey said India has successfully navigated an exceptionally volatile global environment marked by geopolitical tensions, supply-chain disruptions and sharp commodity price swings, while preventing inflation from becoming entrenched.

Broad-based moderation in inflation

Headline consumer price inflation has eased from its post-pandemic and geopolitical shock-driven peaks. The moderation, the survey noted, has not been confined to fuel or temporary factors, with core inflation also softening, indicating a durable disinflation process.

While food inflation continues to witness episodic spikes due to supply-side and weather-related factors, its pass-through to core inflation has weakened, suggesting improved anchoring of inflation expectations.

Anchored expectations support price stability

A key factor behind India’s inflation control has been the anchoring of inflation expectations among households and professional forecasters. The survey attributed this to the credibility of India’s inflation-targeting framework, consistent monetary policy actions and clear communication by the central bank.

Anchored expectations have helped limit second-round effects during periods of food or energy price volatility, reducing the need for aggressive policy tightening.

Fiscal–monetary coordination and supply-side measures

The survey highlighted that inflation management during the period benefitted from close coordination between fiscal and monetary policy. Government interventions, including calibrated trade policy actions, buffer stock releases and improvements in supply-chain logistics, complemented monetary tightening and reduced pressure on interest rates alone to contain inflation.

Such supply-side measures were particularly effective in managing food and fuel-related price pressures, given their significant weight in India’s consumer price index.

Easing input costs and external conditions

The document also pointed to easing input costs for manufacturers as global commodity prices moderated. The normalisation of the GDP deflator and improvement in India’s terms of trade helped contain imported inflation pressures, supporting the overall disinflation trend.

Risks remain from global volatility

Despite the favourable outlook, the survey cautioned that risks remain. Volatility in global metal prices, currency fluctuations amid shifting global financial conditions, and climate-related disruptions to food supplies could create intermittent inflationary pressures.

However, it noted that India is better positioned than in previous cycles to manage such risks, backed by stronger buffers, improved institutional credibility and quicker policy responses.

Stable inflation outlook supports growth

Overall, the survey concluded that inflation is likely to remain “tamed and anchored” going forward, providing a stable macroeconomic environment to support growth, even as policymakers remain vigilant against domestic and global uncertainties.