Inflation has moved back to the centre of the policy debate, with the Reserve Bank of India (RBI) revising its projections slightly higher across key quarters. Although the Monetary Policy Committee (MPC) kept interest rates unchanged, the updated numbers indicate that price pressures may firm up faster than previously expected.

For the current financial year (FY26), headline inflation is now projected at 2.1 per cent, up from 2 per cent estimated in December. The revision is modest, but it signals that the phase of rapid disinflation may be easing.

Higher Prints Ahead in FY27

The inflation path for FY27 has also been nudged up. The RBI now sees CPI inflation at 4 per cent in the first quarter and 4.2 per cent in the second quarter, compared with 3.9 per cent and 4 per cent, respectively, projected earlier.

In addition, the estimate for the fourth quarter of FY26 has been raised to 3.2 per cent from 2.9 per cent. Together, these adjustments reflect a gradual normalisation in price trends as favourable base effects fade.

While inflation remains close to the 4 per cent medium-term target, the upward revisions suggest that risks are no longer decisively on the downside.

What Is Driving the Revision?

Recent data show that headline CPI inflation remained sharply contained at 0.7 per cent in November and 1.3 per cent in December 2025, staying well within the tolerance band. Food prices continued to remain in deflation during this period, while fuel inflation was moderate.

Core inflation, excluding food and fuel, also remained benign. Even though precious metal prices rose, underlying core inflation excluding gold was steady at 2.6 per cent in December.

According to the RBI’s assessment, the near-term food outlook remains favourable, supported by strong kharif output, comfortable buffer stocks and healthy rabi sowing. Core inflation is expected to stay range-bound, barring volatility in precious metals.

The central bank has attributed much of the upward revision in its outlook to higher precious metal prices, which are estimated to be contributing around 60-70 basis points to inflation. Excluding this component, underlying price pressures are described as muted.

At the same time, policymakers have flagged risks from geopolitical tensions, energy price volatility and adverse weather conditions. Base effects, particularly the sharp fall in prices seen in Q4 of FY25, are also expected to push year-on-year inflation higher in Q4 of FY26, even if momentum remains subdued.

Overall, the RBI has characterised inflation risks as evenly balanced, with the trajectory remaining near the target despite the upward tweaks.

External Stability Supports the Outlook

From a macro perspective, the inflation outlook is cushioned by strong external buffers. India’s foreign exchange reserves stood at $723.8 billion at the end of January, providing protection against imported price shocks and currency volatility.

The current account deficit is also expected to remain moderate during the current financial year, limiting pressure from the external sector.

Policy Takeaway

The key message from the February review is clear: inflation is under control, but the room for further downside surprises has narrowed. With projections revised upwards for FY26 and the first half of FY27, the RBI appears cautious about declaring a sustained disinflation trend.

Going forward, movements in food prices, energy costs and precious metals will be critical in shaping the inflation path, and, by extension, future monetary policy decisions.