The headline retail inflation for December is estimated to stay on the upward trajectory after falling to a series low in October due to adverse base effects in food prices and sequential firmness in precious metals, economists said. The CPI inflation is estimated to be 1.45% year-on-year in December, up from 0.71% in November and 0.25% in October, given the median of an FE poll of economists.
This would mean the key inflation figure might have stayed below the Reserve Bank of India’s (RBI) medium-term target of 4% for the 11th consecutive month and below the lower end of the central bank’s target range of 2-6% for the fourth straight month.
The December inflation print would be the last reading under the older 2012 base, with January 2026’s print (scheduled to out on February 12) to reflect the new 2024 base year.
Why December Numbers Are Inching Higher
The economists see the headline inflation to stay below the 4% target “through the middle of next financial year.” Sakshi Gupta, Economist at HDFC Bank, said the inflation will continue to remain below 2% in the short term and also stated that sequential increase, from November to December, is partly because the base effect is turning unfavourable.
Headline inflation is expected to remain well below the RBI’s 4% target for the remainder of the year, Rajani Sinha, Chief Economist at CareEdge said. “The rise from November to December primarily reflects a narrowing of food deflation. This moderation is largely driven by a sequential increase in vegetable prices—led by tomatoes—as well as higher egg prices,” Sinha said.
Meanwhile, Vivek Kumar, Economist at QuantEco, stated that while the food prices have fallen this time as it usually happens in winter, the extent of fall is somewhat weaker than usual trend. He cited an adverse base effect in food prices as the main potential cause for inflation apparently having inched up in December.
Radhika Rao, Senior Economist at DBS Bank, said that sequential firmness in food and precious metals likely added to the lift in the month, besides seasonal pressure on services.
New Era for Inflation Measurement
The estimates for December retail inflation ranged from 1% to 1.7% in a poll of eight economists.
The economists projected food inflation in the range of (-)1.1% to (-)2.1% in December. Food’s 46% weight in the CPI basket makes it a dominant factor. The core inflation, which excludes food and fuel components from the basket, is projected in the range of 4.3% to 4.5% in December. The core inflation will remain around 4% in the next few months, due to high prices of precious metals, Sinha said.
The Ministry of Statistics and Programme Implementation will release the CPI figures for December on Monday.
Looking ahead, Sinha expects headline inflation to average 3.3% in Q4 FY26, with a full-year average of 2.1%. “For FY27, headline inflation is projected to average 4%, based on the current CPI basket composition. The forthcoming launch of the new CPI series will be a key development to monitor,” Sinha said.
Rao, however, sees a moderate upside risk to her annual (FY26) forecast at 1.8%, before the average moves up to 4% in FY27. “The base year revision is expected to benchmark weights to the household consumption survey, besides including online platform services data to better represent service sector price pressures,” Rao said.
In December, the RBI projected CPI inflation for FY26 at 2%, down from its previous estimate of 2.6%. For Q3 and Q4, the RBI projected headline retail inflation at 0.6% and 2.9% respectively.