India Enters 'Goldilocks Period' as Inflation Projected to Stay Below 3%

State Bank of India projects retail inflation to remain below 3% until June 2025, attributing the dip to a sharp fall in food prices. This marks a 67-month low for inflation. The SBI expects the Indian economy to experience stable growth with negligible inflation, prompting potential interest rate cuts.

India's retail inflation is expected to stay below 3% until June 2025, according to State Bank of India's latest report. The consumer price inflation (CPI) in March 2025 witnessed a significant drop to a 67-month low of 3.34%, primarily due to falling food prices.

The report states, "The sharp moderation in CPI inflation, hitting a 67-month low of 3.34% in March 2025 due to a sharp correction in food inflation, bodes well for lowering the average CPI headline forecast for FY26 below 4% now (with below 3% in Q1FY26)." The falling food prices are expected to help maintain an average CPI inflation below 4% for the fiscal year 2025-26.

The SBI projects CPI to remain under 3% in the first quarter of FY26, spanning April to June 2025, with an estimated year-long inflation average between 3.7 and 3.8%, barring unexpected food price hikes. Meanwhile, core inflation, excluding food and fuel, experienced growth, peaking at 4.1% in February and March 2025, mainly due to rising gold prices caused by global uncertainties.

Excluding gold, core inflation was at 3.2%, lower than the overall CPI rate. SBI anticipates core inflation, including gold, to range between 4.0% and 4.3% for FY26. With low inflation and nominal GDP growth predicted at 9 to 9.5% for FY26, slightly under the Union Budget's 10% estimate, SBI sees this as a 'Goldilocks period' for the Indian economy, a phase of stable growth with minimal inflation.

In light of these conditions, the SBI suggests it is an opportune moment for the Reserve Bank of India to contemplate cutting policy interest rates.

(With inputs from agencies.)