Inflation, measured by the consumer price index (CPI), rose to 1.33% in December from a series low of 0.25% in October and 0.71% in November, largely on account of narrowing of food deflation and waning of a favourable base.
According to the National Statistics Office (NSO), the inflation of personal care and effects, vegetables, meat and fish, egg, spices and pulses and products largely contributed to an increase in headline inflation in December.
It is for the fourth straight month that the inflation has stayed below the lower end of the Reserve Bank of India’s (RBI) tolerance band (4 +/- 2). The RBI had in its December monetary policy meeting cut the inflation target for 2025-26 to 2% from 2.6% forecast earlier, and delivered a 25 basis points cut in repo rate to 5.25%. Many analysts expect another 25 bps rate cut in February policy review, which they feel may be the last in the current easing cycle.
Core Inflation
Core inflation, however, jumped to a 28-month high of 4.6% in December, due to the firming up of prices of precious metal, mainly gold. Core CPI excluding gold and silver remained unchanged at 2.4% between November and December.
The headline inflation in rural and urban areas stood at 0.76% and 2.03% respectively, in December.
Inflation in food prices was recorded at -2.71% in December, compared with -3.91% in November. Food inflation has been in the negative zone for seven months in a row. The key food disinflation drivers in December were the lower prices of vegetables and pulses when compared to last year.
The December inflation also marks the last print in the 2012 series. With the Ministry of Statistics and Programme Implementation revising the CPI base year to 2024, the January inflation print will be as per the new base and released on February 12.
What do economists say?
Madhavi Arora, Chief Economist at Emkay Global, said the new series is expected to have a lower weight for food, among other changes, which will possibly push headline CPI higher in the current scenario of food deflation. Nevertheless, it is expected to reduce headline CPI volatility going ahead, Arora said.
In December last year the CPI inflation was 5.22% and food inflation was 8.39%.
Looking ahead, ICRA expects the food and beverages segment to revert to inflation in January 2026 after printing in the deflationary territory in six of the last seven months. This will push the headline CPI inflation reading above the 2.0% mark after a gap of four months, Aditi Nayar, Chief Economist at ICRA said.
India Ratings and Research stated that the retail inflation dipped to a record low of 0.8% in Q3 of FY26, thereby being the second successive quarter of inflation levels being out of the lower tolerance band (4%±2%) of the monetary policy committee.
“The deflationary trend prevails still across various food items as per the latest price data available (till 11 January 2026). With the favourable base effect fading away, the retail inflation is expected to pick-up from Q4 FY26 onwards. Ind-Ra expects the inflation to average 2.6% in Q4 FY26,” Paras Jasrai of India Ratings and Research said.
RBI has forecast October-December inflation at 0.6 % and January-March at 2.9%.
Underlining that the December 2025 MPC meeting minutes suggest a possibility of another rate cut in February, ICRA believes that a pause is warranted at the current juncture. However, Jasrai expects the February MPC meeting to opt in for a 25 bps cut in policy rates which may be the last easing in the current cycle.