Union Bank Revises Inflation Forecast Amid Cooling Food Prices

In a strategic move that mirrors market trends, Union Bank of India has revised its inflation forecast for the financial year 2025-26. The bank has adjusted its headline inflation projection from 4% to 3.6%, closely aligning with the Reserve Bank of India's (RBI) forecast of 3.7%.

The report highlighted that retail inflation in June 2025 is expected to settle at 2.3%, with July potentially marking the near-term bottom. The bank's projections suggest a possible CPI of 3.1% in an optimistic scenario and 4.2% in a pessimistic one, both notably lower than previous forecasts for FY25.

Food prices have played a crucial role in this adjustment. After consistently high food inflation in the past years, projections indicate a significant reduction to 3% for 2025-26, the lowest in seven years. Favorable climate conditions have been cited as a pivotal factor in this expected cooling.

Meanwhile, the RBI's monetary policy has seen a cumulative rate cut of 100 basis points this year, leaving the terminal rate at 5.50%. The bank anticipates a gradual rise in CPI from August 2025, possibly surpassing the comfort level of 4% in the second half of FY26.

May's inflation figures, the lowest since February 2019 at 2.82%, were driven by declines in the prices of essential commodities, benefiting consumers significantly. This decline is aligned with the broader economic target of maintaining inflation within a manageable range of 2-6%, a key priority for economic stability.

(With inputs from agencies.)