While consumers are already dealing with higher prices for many food products, the Finance Ministry’s Monthly Economic Review report has cautioned that persistently high food inflation may curb expenditure on non-food discretionary goods.
The report, released just before the festive and wedding season, when Indian households typically make major purchases, observed that the prospects for domestic food inflation and agricultural production remain uncertain, especially with a strengthening El Niño projected to reach its peak in late 2026.
The Monthly Economic Review for August warned that this may create downside risks for crop yields during the late-August flowering and grain-formation phases, while may also influence soil moisture and the winter temperatures needed for the forthcoming Rabi crops, especially wheat and mustard.
It further noted that kharif sowing has picked up pace with the strengthening of monsoon rains over much of the country, though the sown area is still lower than in the previous year.
It warned that rising food inflation, by consuming a larger share of household disposable income, could limit spending on non-food discretionary items, thereby reducing the extent to which cost push are passed on to final consumer prices.
Consumer price inflation increased to 4.45% in July 2026 from 4.38% in June, while food inflation climbed to a higher rate of 5.52% in July.
Although the monsoon improved significantly in July, there have been reports of crop damage caused by excessive rainfall.
This, along with an extended cropping cycle and therefore a delayed harvest, is expected to drive up prices of pulses in particular. International prices of edible oils are also elevated, and this is being reflected in domestic markets,” Madan Sabnavis, Chief Economist at Bank of Baroda, wrote in a note on August 12 regarding the July CPI inflation estimates.
The MER observed that several recent government initiatives are intended to alleviate price pressures in cost-sensitive areas, including fuel, LPG, and sugar.