India's Inflation Set to Hit Historic Lows Amid Global Trade Shifts

SBI forecasts that India's inflation could dip below 4% for the first half of FY26, amid reciprocal tariffs by the US leading to potential goods dumping. The CPI may drop to 3.8% in FY25's last quarter. India's current account could also see a surplus by FY25's end.

A recent report by the State Bank of India (SBI) suggests that Indian inflation might drop below 4% for the first half of the fiscal year 2025-26, marking a potential historic low not seen for consecutive quarters in recent years.

The study highlights how US-imposed reciprocal tariffs could trigger fears of goods dumping in India, possibly pushing inflation even lower. The Consumer Price Index (CPI) inflation is anticipated to decrease to 3.8% in the final quarter of FY25, with the average yearly inflation projected to be about 4.6%.

SBI expects inflation rates for FY26 to hover around 3.9-4.0%, while core inflation may remain between 4.2-4.3%. Despite an expected decline in headline inflation until fall 2025, there's a possibility of it rising afterward, influenced by global trade dynamics. Notably, India's current account balance is predicted to shift to a surplus by the fourth quarter of FY25, amid rising net service receipts and a widened merchandise trade deficit.