HSBC Predicts India’s Inflation to Stay Low at 2.5% Over Next Six Months on Strong Monsoon, Food Stability
A Positive Outlook for India’s Price Stability
New Delhi, June 30 (TTP) India’s inflation is likely to remain well-contained in the near term, thanks to favourable weather patterns, ample cereal production, and a high base effect, according to a report released by HSBC Global Investment Research on Monday. The report forecasts average inflation to hover around 2.5% over the next six months, a level significantly lower than many global peers.
HSBC also expects overall inflation for FY26 to average 3.2%, suggesting a prolonged period of price stability in India.
Food Prices Stay in Check Amid Healthy Grain Reserves
One of the key drivers behind this positive inflation forecast is strong food supply, particularly from cereals, which form a significant portion of the Indian consumer basket.
“FY25 concluded on a strong note for India’s granaries, with robust cereal production ensuring ample stock levels,” the report said.
This abundance in cereal supply is expected to prevent any major price spikes, thereby keeping food inflation in check.
Monsoon Boost: Early Rains and Strong Reservoir Levels
Another major supporting factor is the ongoing monsoon season, which, despite a brief pause, has picked up pace again and is currently delivering rainfall levels that are 9% above normal—the highest in over three years.
Regional Rainfall Trends:
- North-West and Central India have received the most rain so far.
- The India Meteorological Department (IMD) expects complete country-wide coverage in the coming days.
The early onset and strong current momentum of monsoon rains are not just good for summer sowing, but also help replenish reservoirs—which play a vital role during the winter sowing season.
“Currently, reservoir levels are higher than last year's levels as well as normal storage levels, with the southern region doing particularly well,” the HSBC report highlighted.
Sowing Trends: 10% Higher Than Last Year
As of June 20, total sown area stood at 14 million hectares, which is 10% higher than the same time last year—a bullish indicator for the kharif season.
Crop-wise Sowing Highlights:
- Rice, pulses, and cereals have shown strong year-on-year growth.
- Oilseeds, however, are lagging slightly behind.
If this trend continues, it could translate into stable food prices, increased farm incomes, and better rural wage dynamics.
Impact on Agricultural Wages and Mass Consumption
The report notes that nominal wage growth for agricultural workers has been improving. In April 2025, wage growth touched 8%, up from the 6.5% trend in recent months.
Moreover, with inflation falling, real wages—the actual purchasing power of workers—are increasing, which is expected to spur mass consumption in the coming months.
“The fall in inflation is helping boost real wages. And this, we believe, will boost mass consumption in the months ahead,” HSBC said.
This could prove crucial in sustaining domestic demand at a time when global growth remains sluggish.
Core Inflation Also in Check
In addition to food prices, core inflation—which excludes volatile items like food and fuel—has also remained under control. This is attributed to several factors:
- A strong Indian rupee
- Falling global commodity prices
- Imported disinflation from China
- Subdued economic growth compared to a year ago
These factors collectively create a favorable environment for the Reserve Bank of India (RBI) to maintain a pro-growth stance in its upcoming monetary policy reviews.
Expert View: Rain and Reservoirs Will Be Key
While the near-term inflation picture looks promising, HSBC also flagged that FY26’s inflation trajectory will depend heavily on monsoon progression, reservoir health, and sowing outcomes.
“What matters a bit more is how rains, reservoir levels, and sowing will pan out in FY26,” the report said.
Thus, while India appears well-placed to maintain low inflation through the remainder of 2025, weather uncertainty, geopolitical shocks, or a resurgence in global commodity prices could still be potential risks.
Policy and Market Implications
The subdued inflation forecast could influence both monetary policy and financial markets:
- The RBI may opt to maintain or even ease interest rates to support growth.
- Bond markets could see more inflows, driven by inflation-adjusted returns.
- Consumer-driven sectors—especially rural consumption—may get a boost as real incomes rise.
Reader Takeaway
India’s economic outlook appears increasingly resilient, as rain-fed agriculture, ample food stocks, and controlled core inflation combine to anchor price levels.
If sowing and rainfall trends continue on this trajectory, Indian consumers could enjoy affordable food prices, higher real incomes, and an improved standard of living in the months ahead.