Economic Survey sees higher inflation ahead as weaker rupee poses risk, soft commodities offer relief

The Economic Survey tabled in Parliament on Thursday highlighted that India’s inflation is expected to edge up gradually in the coming fiscal but remain within the Reserve Bank of India’s target range, with soft global commodity prices, easing food inflation and a weaker rupee shaping the outlook, even as prices of metals -- particularly gold, silver and copper -- remain firm, according to official projections and multilateral assessments.

The RBI and the International Monetary Fund (IMF) have projected a progressive increase in headline inflation towards the 4 per cent target over the next two years. While the depreciation of the rupee could open the door to imported inflation, its impact is expected to be limited by declining global commodity prices, especially crude oil. At the same time, rising prices of precious metals and select base metals may keep core inflation elevated.

"The depreciation of the currency could pave the way for imported inflation. However, global commodity prices are expected to remain soft, thereby limiting the impact," according to the statement.


Moreover, India’s headline inflation, as well as core inflation excluding precious metals, is expected to be higher in FY27 compared with FY26, reflecting a normalisation of price pressures, the survey revealed.

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The RBI has forecast headline inflation at 3.9 per cent in the first quarter of FY27 and 4 per cent in the second quarter, while the IMF expects inflation to average 2.8 per cent in FY26 and rise to 4 per cent in FY27.

In December 2025, the RBI revised its inflation projection for FY26 downward from 2.6 per cent to 2.0 per cent, citing a strong kharif harvest and healthy rabi sowing. Below-normal temperatures through much of 2025, coupled with above-normal monsoon rainfall, have boosted reservoir levels, improved foodgrain stocks and helped keep food inflation under control.


Globally, inflation has moderated sharply from post-pandemic highs. Advanced economies have stabilised inflation at around 2–3 per cent, while emerging markets, including India, have seen a notable deceleration. The moderation has largely been driven by easing commodity prices—especially food and energy—and timely monetary tightening by central banks.

India has stood out among major emerging market and developing economies (EMDEs), recording one of the steepest declines in headline inflation -- around 1.8 percentage points -- while maintaining robust economic growth. GDP growth stood at 8 per cent in the first half of FY26, underscoring the economy’s ability to manage price pressures without overheating. Global rating agencies, while upgrading India’s sovereign outlook, have also acknowledged the credibility and effectiveness of the country’s inflation management framework.

Domestically, retail inflation measured by the Consumer Price Index (CPI) followed a clear downward trajectory, falling to 1.7 per cent in FY26. The decline was driven primarily by a sharp drop in food prices, particularly vegetables, pulses and spices, supported by favourable agricultural conditions and targeted policy interventions. While core inflation appeared sticky, much of the persistence was attributed to rising prices of precious metals. Excluding gold and silver, underlying inflationary pressures were more subdued.

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Looking ahead, food inflation is expected to remain moderate, aided by strong agricultural output, improved stock positions and government measures to enhance fertiliser availability and contain input costs. The continued pass-through of GST rate rationalisation into commodity prices is also expected to ease cost-side pressures.

Risks remain, however. Currency depreciation could contribute to imported inflation, though its impact may be limited by soft global commodity prices. According to the World Bank’s October 2025 Commodity Prices Outlook, global commodity prices are expected to decline by around 7 per cent in FY27, largely due to subdued crude oil prices amid oversupply, although geopolitical tensions could alter this trajectory.

At the same time, prices of base metals such as iron, copper and aluminium are expected to rise moderately, driven by demand from green technologies and data centres, as well as supply constraints. Precious metals—gold and silver—are likely to remain firm amid global uncertainty, though some analysts believe the sharp gains seen in 2025 may not be sustained.

Overall, while both headline inflation and core inflation (excluding precious metals) are expected to be higher in FY27 than in FY26, economists and policymakers believe inflation is unlikely to become a macroeconomic concern, given India’s strong growth momentum and effective monetary management.