Elevated food inflation could constrain spending on non-food discretionary items, says Monthly Economic Report

Even as consumers face rising prices of several food items, the Finance Ministry’s Monthly Economic Review has warned that elevated food inflation could restrict spending on non-food discretionary items.

The report, which comes just ahead of the festive and wedding season that tends to see big-ticket purchases by Indian households, noted that the outlook for domestic food inflation and agricultural output remains cautious, with an intensifying El Niño expected to peak in late 2026.

“This could pose downside risks to crop yields during the late-August flowering and grain-formation stages, while also affecting soil moisture and the winter temperatures required for the upcoming Rabi crops, particularly wheat and mustard,” said the Monthly Economic Review for August. It added that kharif sowing has gained momentum following the intensification of monsoon rains across large parts of the country, although acreage remains below last year’s level.

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“Elevated food inflation, by absorbing a larger share of household disposable income, could constrain spending on non-food discretionary items, thereby limiting the extent to which cost-side pressures are passed through to final consumer prices,” it warned.

Consumer price inflation rose to 4.45% in July 2026 from 4.38% in June, while food inflation was higher at 5.52% in July.

“Food items such as milk, chicken, mutton, fish, refined oil, onion, and arhar/tur recorded notable inflation in July compared with their June print,” said the report, adding that protein-rich items, including fish, and processed food, including sugar, confectionery and beverages, emerged as the key contributors to food and beverages inflation in July.

Of late, consumers have been complaining of higher prices of several food items, including sugar, eggs, onions and tomatoes, while experts have warned that food inflation may continue to show a rising trend.

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“While monsoon has recovered substantially in July, there has been news of crop damage due to excess rains. This, combined with a longer cropping period and, hence, harvest, will push up prices of pulses in particular. Global prices of edible oils are also high, which is being felt in domestic markets,” Madan Sabnavis, Chief Economist, Bank of Baroda, had said in a note on August 12 on July CPI inflation estimates.

The MER noted that some of the recent measures undertaken by the government aim to ease price pressures in cost-sensitive segments, including sectors such as fuel and LPG, as well as sugar.