Prices can cool quickly if tax cuts come into effect; Inflation expected by 3.1% in FY26: Bob Report

The sequential image of food inflation also shows a loss of momentum for food inflation. | Photocredit: Thulasi Kakkat

The prices of everyday goods and services can fall in the coming days, because recent reductions in indirect taxes by the government are starting to show their effect, according to a report from Bank of Baroda (BOB). The report added that overall inflation (CPI) will probably settle at around 3.1 percent in the 2025-26 financial year, with a good chance that it could be even lower.

“We can see the episodes of disinflation in the coming days, because government support by lower indirect tax rates is likely to be passed on to actual figures earlier, if not later. We expect CPI in FY26 to settle in 3.1 percent, with risks that are tilted down the report.”

Consumer inflation saw some lighting in August 2025, mainly driven by a continuous decrease in food prices. CPI inflation Lecture was 2.1 percent in August 2025, based on JoJ, compared to 3.7 percent inflation seen in August 2024.

The food price index remained in deflation for the third month in a row, indicating that the disinflation trend gains strength. Much of the comfort came from the lower prices of vegetables and pulses.

The small prints show that the food index remained in deflation area for three consecutive months, by -0.7 percent fell in August 2025 compared to 5.7 percent in August 2024.

The sequential image of food inflation also shows a loss of momentum for food inflation. The most important softening is seen for vegetables, fruit, meat and fish and eggs. Even oil -containing seeds whose prices used to be sticky because of a higher international price, also moderated a little. However, the domestic price must be checked because the sowing has been moderated.

The consumer food price index increased by 0.8 percent, MAM, in August 2025 on a season.

Bank of Baroda’s Internal Economic State Index (BOB ECI) is -0.9 percent for the first 10 days of September 2025, which indicates a further softening of the prices. Even weather -related disruptions have not influenced the delivery of important vegetables such as tomatoes, onions and potatoes (above), it said.

In the meantime, core inflation has remained stable and the core inflation excluding gold remains low, the report added.

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Published on September 13, 2025