Retail Inflation May Cross 6% In October-November Before Easing In Q4 FY27, Report Says

New Delhi: India's retail inflation could briefly cross 6 per cent in October-November before easing to around 5 per cent in the fourth quarter of FY27, according to an SBI Research report.

The report expects retail inflation to rise to 4.7 per cent in August from 4.45 per cent in July. "We expect August inflation print at 4.7%, with inflation possibly just breaching the 6% in October and November before declining to ~5% in Q4 of FY27," it said.

The report said improving food supply conditions could help contain inflation. The monsoon has recovered after a weak start, with surplus rainfall in July and normal rainfall in August narrowing the overall rainfall deficit to around 13 per cent from nearly 40 per cent in June.

It also said a positive Indian Ocean Dipole (IOD) could partly offset the impact of El Nino. Kharif sowing is only 2 per cent below last season despite below-normal rainfall in some major foodgrain-producing states, "indicating better irrigation facilities among states."

The SBI report said historical trends also suggest that fourth-quarter inflation could be lower than current forecasts.

On monetary policy, RBI Governor Sanjay Malhotra has indicated that the Reserve Bank of India would need greater clarity on the inflation trajectory before recalibrating the policy rate. According to the minutes of the latest Monetary Policy Committee meeting, Malhotra said inflation was showing signs of normalisation from earlier benign levels and preferred to wait for more evidence before deciding the future course of monetary policy.

The SBI report flagged concerns over central bank communication, saying recent policy actions could carry greater weight than forward guidance. Referring to measures such as variable rate reverse repo operations (VRRR) and the FCNR(B) deposit mobilisation window, it said: "markets must ensure a premium to pragmatic action vis-a-vis honest communication."

On global markets, the report said US Federal Reserve measures aimed at smoothing the long end of the US Treasury yield curve, including increased government debt repurchases, could have implications for global markets. It noted that yields have declined across longer maturities and the benchmark 10-year segment amid expectations of a shift in government debt supply between short- and long-term maturities.

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