Softening prices through FY26 are reshaping India’s economic backdrop, just as preparations begin for Budget 2026. Retail and wholesale inflation eased steadily, shifting attention at North Block from emergency price control towards supporting growth. This changing context gives Finance Minister Nirmala Sitharaman more room to balance fiscal priorities while the Reserve Bank of India reassesses monetary support.
Price relief became most visible by October 2025, when inflation indicators recorded their sharpest cooling of the year. Consumer inflation based on CPI dropped to 0.25% year-on-year in October, from 1.44% in September, the lowest since the current CPI series started. Wholesale inflation also stayed in deflation, confirming that input costs for producers continued to fall.
FY26 inflation in India and Budget 2026 outlook
India had entered FY26 with inflation still elevated after earlier supply shocks in food and fuel. Through the first half of the year, however, price pressures eased each month. By mid-year, retail inflation moved inside the RBI tolerance band and kept sliding. Cheaper food items and lower fuel costs helped this trend, while external commodity prices softened at the same time.
The disinflation pattern was even clearer in wholesale prices. WPI inflation turned negative by October, at around –1.2%, reflecting reduced input prices for manufacturers. Weakness in global commodities fed through to domestic markets, especially metals and energy. These numbers confirmed that producers were facing cheaper raw materials, although final consumer prices did not always mirror that fall.
Drivers of FY26 inflation in India: food, fuel and core trends
The WPI Food Index emerged as the biggest single factor behind the disinflation narrative in FY26. It fell –5.04% year-on-year in October, after already registering –1.99% in September. This suggested a clear easing in prices across important food categories. Lower food costs helped drag down both wholesale and retail headline indices during the peak of the cooling phase.
Despite this strong moderation in headline measures, core inflation offered a different picture. Data showed that the non-food and non-fuel basket stayed relatively steady. Services prices and many manufactured items did not mirror the steep falls seen in food and some commodities. This indicated that, so far, disinflation had not become fully broad-based across the entire consumption spectrum.
RBI monetary policy and FY26 inflation in India
Against this backdrop, the RBI adjusted its outlook for FY26 more than once. The central bank started the year with a CPI forecast of 4.2%. As actual inflation prints eased, projections were revised lower several times. The most recent estimate pegs FY26 CPI inflation at 2.6%, signalling growing comfort that inflation is aligning with the medium-term target.
Monetary policy began to respond in early 2025 after a long pause in rates. The RBI cut the policy rate by 25 basis points in February 2025. Further cuts followed in April and June, taking total reductions in the current cycle to 100 basis points. In June, the stance moved from “withdrawal of accommodation” to “neutral”, indicating reduced concern about fresh upward shocks.
| Indicator | Period | Value |
|---|---|---|
| RBI initial CPI projection for FY26 | Start of FY26 | 4.2% |
| Latest RBI CPI projection for FY26 | Revised | 2.6% |
| CPI inflation | October 2025 | 0.25% YoY |
| WPI inflation | October 2025 | –1.2% YoY |
| WPI Food Index | October 2025 | –5.04% YoY |
Under Governor Sanjay Malhotra, the RBI has stressed that inflation control still comes first, even while easing. The Monetary Policy Committee underlined that inflation is now much closer to the target band. It also signalled that more flexibility is possible, as long as expectations stay anchored and growth conditions justify further support to demand.
For business leaders and policymakers heading towards Budget 2026, the numbers point to a phase of disinflation with contained risks. Softer CPI and negative WPI readings create scope for both fiscal and monetary strategies to lean slightly towards growth. At the same time, the stable core basket and services prices keep attention fixed on maintaining price stability over the rest of FY26.
