For the fourth consecutive month, retail inflation stayed below the Reserve Bank of India's (RBI) tolerance target, despite edging up to a three month high in December due to narrowing deflation in some food items and a diminishing favourable base impact.
Retail inflation, as measured by the consumer price index (CPI), increased by 1.3% annually on Monday, according to data issued by the National Statistics Office (NSO). This is greater than the 0.7% increase in November and lower than the 5.2% increase in December 2024.
In December, food inflation decreased by 2.7% while rising by 120 basis points from November. In December, urban inflation was 2% while rural inflation was 0.8%.
Due to a strong increase in gold and silver prices, which increased by 69% and 97% year over year, respectively, core inflation which does not include food and fuel rose to a 28 month high of 4.8% during the month, up from 4.4% in November. Core inflation decreased to 2.3% in December when these metals were taken out of the equation.
The rise in personal care and effects, vegetables, meat and fish, eggs, spices, and pulses and products was a major contributing factor to the overall and food inflation increases in December.
Gold and silver are included in personal care and effects, which increased 28.1% in December. "For the remainder of FY26, headline inflation is predicted to slightly increase but stay below the RBI's 4% objective.
Based on the current CPI basket, CPI inflation is expected to average about 2.1% for FY26 and 4% for FY27. Rajani Sinha, chief economist at ratings firm CareEdge, stated that the launch of the new CPI series with a 2024 base year next month will be a significant development to keep an eye on.
The recent increase in inflation is unlikely to cause problems for the RBI in terms of monetary policy. We anticipate the Monetary Policy Committee (MPC) to halt and preserve policy space, choosing to loosen only if growth circumstances worsen, even though inflation predictions allow for an additional 25 basis point rate decrease," Sinha stated.
