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Will Food Prices Be Lower in FY26? Here's What the Economic Survey Says

"Pressures in food prices have been driven by factors such as supply chain disruptions and vagaries in weather conditions," the Economic Survey 2024-25 noted

The Economic Survey 2024-25 noted that retail headline inflation, measured by the change in the Consumer Price Index (CPI), softened from 5.4% in FY24 to 4.9% in April-December 2024. This decline is attributed to a 0.9 percentage point reduction in core (non-food, non-fuel) inflation between FY24 and April-December 2024.

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While average inflation in FY25 has trended downward, monthly volatility in food prices has led to CPI inflation reaching the upper side of the RBI's tolerance band of 4% (+/-) 2%.

"Pressures in food prices have been driven by factors such as supply chain disruptions and vagaries in weather conditions," the Economic Survey 2024-25 noted.

Food Inflation
Food Inflation

The Consumer Food Price Index (CFPI) increased from 7.5% in FY24 to 8.4% in FY25 (April-December), primarily driven by a few food items like vegetables and pulses.

"In recent years, food inflation has been a major contributor to headline inflation. However, an increase in prices is not widespread across all food categories. It is primarily driven by a few items," Economic Survey 2024-25 noted.

However, the survey forecasted that food inflation will likely soften in Q4 FY25 due to seasonal easing of vegetable prices and Kharif harvest arrivals. Good Rabi production is expected to contain food prices in the first half of FY26, although adverse weather events and rising international agricultural commodity prices pose risks to food inflation.

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Onion and Tomato Prices

The pre-budget document noted that inflationary pressures in onions remained firm in FY24 and the current year, despite government efforts to contain prices due to constrained supply resulting from reduced production.

"The lower production in 2022-23 and 2023-24 has led to inflationary pressures in onions for FY24 and FY25," the Economic Survey 2024-25 stated.

Price pressures in tomatoes remained intermittently high since FY23 due to constrained supply.

"Despite earnest efforts by the government to improve supply conditions in deficient regions, price pressures persisted," the report noted. Fresh tomatoes have a short shelf life of 1-2 weeks when stored properly. Tomato production is mainly concentrated in states like Madhya Pradesh, Andhra Pradesh, Karnataka, Gujarat, and Odisha, making the supply chain vulnerable to disruptions.

The Chief Economic Adviser reported that over 65% of tomato production occurs in the Rabi season, similar to onions.

In its December 2024 report, the RBI's Monetary Policy Committee revised its inflation projection from 4.5% to 4.8% in FY25. Assuming a normal monsoon and no external shocks, the RBI expects headline inflation to be 4.2% in FY26.

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According to the first advanced estimates of agricultural production for 2024-25, Kharif food grain production is expected to increase by 5.7%. This growth may lead to softer food inflation pressures, although rising international vegetable oil prices pose an upside risk.

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