Food inflation making a comeback? Why onions and vegetables are leading the price surge

Food prices are once again emerging as a concern for Indian households as rising vegetable costs, deficient monsoon rains and weather-related disruptions begin to push inflation higher. According to Acuite Ratings & Research's July 2026 Macro Pulse report, food inflation is expected to remain elevated in the coming months, with onions and other vegetables driving much of the recent increase.

The report says summer heatwaves, intensified by El Niño conditions and below-normal rainfall, have led to a build-up in food prices over the past two months. Wholesale food inflation has accelerated more sharply than retail food inflation, indicating that cost pressures are building across the supply chain and could gradually be passed on to consumers.

Onions emerge as the biggest driver

Vegetables have recorded the steepest price increases among food items, with onions witnessing the sharpest jump. According to the report, onion prices have risen by nearly 25% during June-July 2026, reflecting supply disruptions caused by adverse weather conditions. Other vegetables have also registered strong monthly price increases, adding to the overall food inflation trend.

The report notes that the weather has played a central role in the latest surge. Prolonged heatwave conditions, followed by an uneven southwest monsoon, have affected crop production and disrupted normal supplies, resulting in higher wholesale prices.

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Weak monsoon raises supply concerns

Acuite identifies the monsoon as one of the biggest risks to India's inflation outlook. As of July 20, cumulative southwest monsoon rainfall was 23% below the long-period average (LPA), while the India Meteorological Department (IMD) expects the season to end with an overall 10% rainfall deficiency. Rainfall shortages are particularly pronounced in southern and northeastern India, increasing the risk of lower agricultural output.

The report also points out that rainfall distribution has remained uneven across the country. Nearly 60% of India's districts have received deficient or large deficient rainfall so far this season, suggesting that agricultural production risks are widespread rather than confined to a few regions.

Although kharif sowing has shown improvement in recent weeks, narrowing its shortfall from around 16% to 6% by mid-July, reservoir levels remain among the lowest recorded in recent years despite some recovery. The report says these developments offer some relief but are not enough to eliminate concerns over crop output and food supplies.

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Inflation likely to stay elevated

Reflecting these risks, Acuite has retained its FY27 consumer price inflation (CPI) forecast at 5.1%, above the Reserve Bank of India's medium-term inflation target of 4%. The report says inflation is likely to remain under pressure due to a combination of deficient monsoon, hardening food prices, higher energy costs and the delayed pass-through of imported input costs caused by rupee depreciation. It assumes Brent crude oil will average USD 80-85 per barrel during FY27.

Headline inflation has already started reflecting these pressures. CPI inflation rose to 4.3% in June 2026, the highest level in 18 months, driven primarily by food inflation. While transportation inflation also increased because of earlier fuel price hikes, core inflation remained broadly stable at 3.9%.

The report adds that household inflation expectations have also moved higher, suggesting consumers anticipate further price increases over the coming months. Acuite expects higher wholesale prices, persistent weather-related supply disruptions and firming input costs to gradually feed into retail inflation, keeping food prices under pressure through the second half of FY27 and making inflation one of the key macroeconomic risks to watch.

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